Do you ever wish school had prepared you more for ‘real life?’
I definitely do – and there’s one lesson I really could have used.
‘How to get a perfect credit score.’
For most people, getting a good score is trial and error, and making those mistakes and learning the ropes as you go can really set you back financially.
Luckily, I’ve put together an easy guide so that you don’t have to lose time and money trying to get it right.
Let’s start with the basics:
What Is a Credit Score?
A credit score is a way for financial institutions and lenders to know how good you are with money.
Think of it like getting a scorecard in school – there are different ‘subjects’ your credit is graded on, and the higher your ‘grades’, the better your chances of getting the things you want in the future.
Why Do You Need a Good Credit Score?
Well, long story short, a high credit score opens doors, saves you money, and gets you more stuff.
A good credit score can help you with car loans, renting an apartment, getting good credit cards, or securing a loan.
It’s basically the key to being able to successfully ‘adult’ as you get older.
Having a good credit score can also save you a ton of money through credit cards or loans.
The higher your credit score the lower the interest rate you’ll be issued.
Low credit scores can give you a 12% APY, while higher credit scores can give you an APY as low as 3%.
So now you know how game-changing that perfect credit score could be for you, you’re probably wondering, how do I get one?
Even if your credit score isn’t perfect right now, there are tried-and-true steps you can take to bring up your score and get back on track.
How to Get a Good Credit Score
Generally, there are 5 categories that credit bureaus use to grade you and generate your score.
1 . On-Time Payment History = 35% of Your Credit Score
The biggest part of your credit score is made up of whether or not you make payments on time.
This includes paying back credit cards, bills, loans, or mortgages.
An easy way to make sure that you do this each month without fail is to set up autopay, so you can’t forget.
With credit cards, you can also technically meet the ‘on-time payment’ requirement by paying back the minimum each month – so if it’s a really tough month, you can do this without lowering your credit score.
However, I would seriously recommend paying off your bill in full, every single month (we’ll get on what this means for other sections of your credit score later!)
Setting up auto-pay where you can and only taking out a few purchases on credit cards (which you pay back right away) is the easiest way to make sure you ALWAYS hit your payments.
See? Easy, right?
You’re already 35% of the way to an excellent credit rating.
2. Credit Utilization = 30% of Your Credit Score
Credit utilization basically means how much of your credit card balance you are using.
To get a good rating for your credit score, you should only be using 10% of your balance.
Confusing, right? Surely, if you use it all and pay it back it shows the credit bureaus they can trust you?
But what you actually need to show them is that you are so good with money that you won’t spend it just because it’s there.
You want to look like you don’t rely on credit to make payments, and you’re financially secure, even without the credit.
You only want to spend 10% of your limit every month – and then you want to pay it back in full (see now why it’s not a great idea to only pay back the minimum each month?)
Technically, as long as your utilization is below 30%, your score won’t fall, but if you want to hit a good or even an excellent credit score, 10% or under is what you need to stick to.
Remember that as your credit score rises, your credit card limits will also get higher, so as your score improves that 10% will become a bigger number over time.
3. Length of Credit History – 15% of Your Credit Score
The length of your credit history shows credit bureaus how long you have been building credit.
It’s easy to think that avoiding credit cards or loans will make life easier and keep you debt-free – but the sooner you start building credit, the better.
Your score is affected by your credit history – and to get an excellent score in this category you need to have been building credit for about 7 years.
It’s advisable to get credit cards and payment contracts as early as you can, so you have a foundation in place to start building credit.
4. Total Number of Credit Lines – 10% of Your Credit Score
This is the trickiest part of getting a good credit score, because there are pros and cons.
On one hand, having multiple lines of credit means you have more credit available, while still only using 10% of the balance.
It also means that you can show more on-time payments as you use and pay off each line of credit, which boosts your overall score.
Having different lines of credit also shows bureaus that you can be trusted to handle different types of loans responsibly.
On the other hand, each time you open a new line of credit, the average age of your credit history is recalculated and becomes lower, which can lower your overall score.
Opening too many lines of credit at once can also make lenders suspicious, so if you’re thinking it might be a good idea to open 10 when you start so they can all age together, think again.
It can be hard to navigate this – but the best way to work around this category is to wait until you NEED a new line of credit and make sure that all the other parts of your credit score are perfect.
You should also aim to use each line of credit to your advantage by utilizing as little as possible (even as low as 1% utilization) to boost the 35% utilization score.
5. Number of Credit Inquiries – 10% of Your Credit Score
Any time you apply for a line of credit (be it an apartment, a new card, a loan, etc) it’s reported to the credit bureaus and it shows up on your report as an inquiry.
This is commonly referred to as a ‘credit check.’
Now, there are two types of searches – a
hard search and a soft search.
If you have more than 6 hard searches in a year, it raises questions in the credit bureaus as to why you are constantly asking for credit, which can lower your score.
If you have a hard search done on you, and the results are bad or you are rejected for the credit you’re applying for, this can also limit your score.
Whenever possible, apply with a soft search first. These don’t show up on your record and shouldn’t affect your score.
Sometimes, though, hard searches are unavoidable, like asking for a mortgage.
Soft searches should always be used for small things like phone bills or gym memberships.
If you can’t get a soft search done, the best way to avoid lowering your score here is to stay informed about your credit scores with each bureau, so you know what companies are likely to find if they run a check on you.
These are the criteria for scoring high on a credit check, and therefore should be your highest priority, but there are still a few extra things you can do to get the best possible score.
Other Ways to Bring up Your Score
Keep your name, address, and current information up to date in the electoral register
This might sound unrelated – but being registered to vote and having up to date information in the system shows you’re trustworthy.
No one wants to give credit or loans to someone who moves every three months or who doesn’t exist in the system.
Be aware of any financial links you might have to others
Many people don’t think about the fact that you might be being affected by someone other than yourself.
If you’ve been married, have a shared account with someone, or have shared loans or mortgages with someone, and they have poor financial skills, you can be affected.
A great example of this is when couples separate, but still have a mortgage in both names. Even if only one falls into financial hardship, both will be affected.
Stay on top of your finances and make sure that you cut ties with anything (or anyone) who is bringing down your score.
Don’t Use Pay Day Loans
As tempting as they might be, these are a red flag to lenders that you have poor money management.
They also have (and cause) drastically bad interest, with triple-digit annual interest rates that need to be repaid within a few weeks.
Get a secure Credit Card
If you are new to building credit, or you have poor credit that you want to re-build, this is a great option.
A secured credit card is one that you, well, secure with a deposit.
As you’ve deposited money to get the card, it’s really easy to get approved, even if you have bad credit or you’re a newbie.
Once you’ve got the secure card, though, you can use it as you would any other card and start boosting your credit score.
Regularly check your credit record and challenge mistakes
It’s likely to happen to you at one point or another – you’ll get rejected for an application because of a note on your record about a late payment – one that you actually did pay.
You need to challenge all the notes on your file and ask for a notice of correction – you can usually do this by contacting the credit reference agency.
Make sure that you are always on top of everything in your file – mistakes do happen and there’s nothing worse than losing opportunities because of something you didn’t even do.
As hard as it can be to wait, improving your credit score won’t happen overnight.
That’s why it’s so important to always stay on top of your records and current scores, so you’re not left helpless the day before you need to take out a loan.
Some of the steps for getting a high credit score can make a fast difference – like utilization or on time payments.
Others, like credit history, will come with time.
So now you know exactly how to get that perfect score – so get out there and do it!
If you know any other tips to get the perfect credit score – leave them in the comments!
Credit cards – DepositPhotos