Do you know your credit score? The three major credit bureaus, Equifax, Equestrian, and TransUnion, compile information from credit reporting agencies to calculate your credit score.
Our credit score determines our level of creditworthiness. When we want to take on debt, such as a car loan, mortgage, or a credit card facility, lenders look at your credit score to assess their risk in loaning you money.
If you have a credit score under 500, the chances of you obtaining any credit facility are slim. If a lender does decide to take a chance on you, then the facility will undoubtedly come with unfavorable terms, such as high-interest rates. This strategy helps banks to discourage you from taking on debt that you can’t afford to repay.
However, if you have a credit score over 750, then lenders view you as a prime customer, offering you the best APR rates, and rewards programs to encourage you to use the facility. People who have a credit score of 800 or more are in the best financial position to apply for new credit facilities. Banks see these clients as low-risk, and they are willing to open any credit facility the customer requires.
So, how do you get your credit score over 800? Follow this brief guide of tips to help you reach the upper-echelon of creditworthiness.
The Components of Your Credit Score
- 1 The Components of Your Credit Score
- 2 The Average Credit Score in the United States
- 3 The Growth in Credit Scores
- 4 How to Check Your FICO Score
- 5 The Benefits of an 800+ FICO Score
- 6 Tips to Build an 800+ FICO Credit Score
- 7 Monitor Your Credit Report
- 8 Don’t Over-Extend Your Credit Facilities
- 9 Pay Creditors on Time
- 10 Avoid Hard Inquiries into Your Credit Score
- 11 How Long Will It Take to Achieve a FICO Score Over 800?
There are two types of credit scores. FICO is the most common credit score used by lenders to assess your creditworthiness. Your FICO score consists of a three-digit number between 300 and 850. VantageScore is a new credit rating system, designed to help consumers that do not have a long enough payment history with creditors to determine a FICO score.
Most lenders assess your FICO score before opening a credit facility in your name. Credit reporting agencies notify the credit bureaus on all of the activity on your credit accounts. The bureaus take this information and create your FICO score using the data. Your score may differ from bureau to bureau, depending on the data they receive from credit reporting agencies.
When it comes to the data involved in creating your credit score, the bureaus rely on the following factors.
Amounts outstanding – This criterion shows all of your current outstanding debt, and how many loans you have in your name. This factor accounts for 30-percent of your credit score.
- Credit history – How long you have had access to credit. This factor accounts for 15-percent of your score.
- New credit – How many new account openings you apply for, and inquiries by lenders looking for your credit score. This factor accounts for 10-percent of the FICO score.
- Credit mix – This factor looks at what types of credit you have, including car loans, mortgages, and credit cards. This factor accounts for the remaining 10-percent of your FICO score.
FICO scores don’t take into account your employment history, age, income, zip code, race, or gender. It’s a blanket score that lenders utilize to gauge your financial health, regardless of your personal information.
The Average Credit Score in the United States
Statistics show that the average FICO credit score for American consumers is 704. This score is the highest figure since FICO started tracking creditworthiness. According to data from the Federal Reserve, consumer debt is set to hit an all-time high in the United States in 2019, with more than $4-trillion in outstanding credit facilities.
In 2009, the average FICO score was 686. Over the last decade, consumer spending and debt levels reached all-time highs, with consumers steadily improving their credit scores, even in a declining economy.
The recent economic expansion shows that the American economy is steadily improving, and the Federal Reserve may stop the current tightening cycle, moving toward a loose monetary policy over the coming years as the economy grows.
This improvement in the economy and the end of the tightening cycle means that banks and other lending institutions are becoming more favorable to lending conditions. This change in policy allows consumers to take on more debt. However, your credit score still plays a vital role in determining your creditworthiness with these financial institutions.
The Growth in Credit Scores
With the average FICO credit score being 704, this statistic means that there are more Americans with superior credit scores over 800 than at any point since the launch of the FICO scoring system. Information from TransUnion shows that more than 21-percent of American consumers have a credit score over the 800 range.
According to data from FICO, there are a few reasons why this trend of Americans having high credit scores in this range continues to rise.
Fewer negative marks – Data shows that consumers with third-party collections steadily decreased between 2014 and 2019. Considering that this counts toward 35-percent of your credit score, it’s no surprise to see the trend of people with credit scores over 800 continue to rise substantially year-on-year.
Responsible credit – Data shows that inquires by lenders into credit scores dropped substantially over the last 5-years. Since “hard” inquiries into your credit score account for 10-percent of the value, this factor has also contributed to the uptrend of better FICO scores.
Consumer education – With the growth in the internet sweeping the country, people now have access to financial literacy at their fingertips. As a result of the increase, consumers are now warier about credit facilities and the impact of a negative credit score on their finances.
How to Check Your FICO Score
Financial legislation requires the three big credit bureaus, Equifax, Equestrian, and TransUnion, to issue you with one free credit report each year. Therefore, if you spread out your credit report requests, it’s possible to get a free update on your credit score three times a year. Consumers also have access to a federally mandated credit report once a year from AnnualCreditReport.com.
Unfortunately, your credit report doesn’t show your FICO score. The report only shows you nay outstanding disputes, collections, or judgments against your name. This report allows you to check for any mistakes on your credit profile, allowing you to the opportunity to dispute any inaccurate information that’s reducing your credit score.
If you have a credit card facility, then it’s possible to check on your credit score if the issuer is a part of the FICO Score Open Access program. More than 170-financial service providers participate in the program, collating data from Citi, Chase, BOA, HSBC, Discover, and many others.
When you log into your online account with a participating institution, you’ll see your score on your statement. However, if you bank with an institution that doesn’t take part in the program, then you’ll have to check your FICO score at myfico.com.
The Benefits of an 800+ FICO Score
An 800+ credit score means that you are an impeccable lender, and financial institutions will trip over themselves to gain your business. Apart from the bragging rights involved with obtaining an 800-plus FICO score, you’ll also have access to the following advantageous financial opportunities.
- Easy approval – As mentioned, banks view people with high credit scores above 800 as priority customers. This status means that you’ll likely get approved for any form of credit you apply for with a bank or financial institution.
- Favorable lending terms – Financial institutions use your credit score as an incentive. If you have a score above 800, then you are more likely to be able to negotiate the lowest interest rate terms and higher credit facilities than those with lower scores.
- Better rewards facilities and programs – If you’ve been with your current credit card issuer for years, and recently crossed the 800+ threshold, then give the service department at the bank a call. People with 800+ scores often qualify for better rewards programs, such as frequent flyer miles and access to airport lounges.
Other perks include discounted car rentals, as well as free breakfasts at participating hotels. Some lenders offer cash-back points systems that reward you for spending on your cards.
However, if you’ve recently crossed the 800+ threshold in your FICO score, your bank is not going to call you to offer you changes to your rates. You’ll need to call your banker and ask to speak to an agent that can help you re-assess your credit profile.
Credit card issuers will turn a blind eye to your credit score, especially if you have an existing facility. Picking up the phone or typing an email to your lender is the best method of renegotiating your terms on your credit card facility.
Tips to Build an 800+ FICO Credit Score
You may be surprised to learn that the 800+ club is not only for wealthy people or individuals with privileges at the credit bureaus. If you manage your credit efficiently and adhere to a few common-sense principles, then then you can expect to be on your way to the 800+ club.
Here are a few tips to help you achieve the pinnacle of creditworthiness.
Monitor Your Credit Report
Your credit report gives you insight into your current state of creditworthiness. Use the information in this article to regularly check in on your credit report.
Since the three credit bureaus allow you to obtain a free credit report once a year, stagger out your request every four months. This strategy will enable you to keep tabs on any new collections or mistakes on your statement.
There are private companies that also allow you to receive a free report on your FICO score as well. Try using creditsesame.com, creditkarma.com, wallethub.com, to get an update on your latest score. Make use of government and financial agencies such as annualcreditreport.com, and myfico.com as well.
If you notice any errors on your report, contact the bureaus immediately, and start the dispute process to clear your credit report. Using this strategy, you minimize any damage to your financial health while giving yourself a roadmap to follow to maintain your credit score.
Don’t Over-Extend Your Credit Facilities
When credit agencies compile your credit score, they take an interest in the use of your current credit facility. Lenders and credit bureaus don’t like to see extended credit cards that are close to maxed out. Therefore, it may be a prudent strategy to keep your credit card debt to a minimum.
The bureaus also don’t like to see accounts laying idle either. Therefore, you should never keep your credit card locked in the safe for emergencies only. Spend on your card, but always clear it at the end of every month, and try not to leave any outstanding amounts past three months.
If your current credit card is over-extended, then you can apply for another card with a different lender. Transfer half of the balance into the new card, that’s as good as paying down your debt. This strategy allows you to give your current credit facility some breathing room while improving your credit score.
Increasing your credit limit is also another valid option that decreases your ratio of outstanding debt to credit available. Call your bank and ask them if you qualify for an extension on your credit card limit.
Pay Creditors on Time
If you want to achieve an 800+ FICO score, then it’s vital that you pay all of your creditors on time. Paying your creditors a few days late can dramatically affect your credit score, listing you as a slow-payer. If you have a solid history of paying on time, with no defaults or late payments, you can expect your score to improve.
Avoid Hard Inquiries into Your Credit Score
A hard inquiry into your credit scores comes from financial institutions when you are inquiring about a new credit facility, such as a mortgage, auto loan, or credit card. If a landlord checks your score, then the bureaus do not consider this as a “hard” inquiry.
If you’re considering about taking on new debts, then shop around for the best rates, and make a list of your preferred providers. Start with the first lender on your list, and wait for their decision, before moving onto the next.
This strategy reduces inquires into your credit report, improving your FICO score.
How Long Will It Take to Achieve a FICO Score Over 800?
Building your credit score above the 800-mark requires dedication and commitment to your finances. In some cases, it may take a few years for you to reach this level. If you already have a FICO score in the 700s, then it may only take a year or two of prudently managing your credit facilities before you reach the 800-club.
However, if you are only starting on your financial journey in life, then it could take as long as 5-years for you to achieve a FICO score in the 800s.