In general, the higher your credit score, You’re better off When it comes to getting a loan.
FICO scores, the most common scoring form, range from 300 to 850. A “good” score is generally above 670, a “very good” score is over 740 and anything above 800 is considered “exceptional.”
Once you reach that 800 threshold, you’re very likely to be approved for a loan and could qualify for the lowest interest rate, according to Matt Schulz, senior credit analyst at LendingTree.
He added that there is no doubt that consumers are currently turning to credit cards because they are having a hard time keeping up with their expenses and there are a lot of factors at play, including inflation. But exceptional credit largely depends on how well you manage debt and for how long.
He said that having a credit score over 800 is not easy, but it is “definitely achievable.”
Although this is considered “good,” an “extraordinary” score can unlock better terms, potentially saving thousands of dollars in interest charges.
For example, borrowers with a credit score between 800 and 850 can get a 30-year fixed rate mortgage rate of 6.13%, but it jumps to 6.36% for credit scores between $700 and $750. Up to an additional $19,000, according to data from LendingTree.
Here’s a breakdown of four factors that play a role in your credit score, and ways you can improve that number.
1. Payments on time
The best way to get your credit score over 800 is to pay your bills on time each month, even if they make the minimum payments due. According to LendingTree’s analysis of 100,000 credit reports, 100% of borrowers with a credit score of 800 or higher paid their bills on time, every time.
Quick payments are the single most important factor, making up nearly 35% of a credit score.
To get there, set up automatic payments or reminders so you’re never late, Schulz advised.
2. Amounts due
From mortgages to auto payments, an exceptional score means no debt but a proven track record of managing a mix of outstanding loans. In fact, the highest-scoring consumers owe an average of $150,270, including mortgages, according to LendingTree.
The total amount of credit and loans you use compared to your total credit limit, also known as your utilization rate, is the second most important aspect of a great credit score — it’s about 30%.
As a general rule, it is important to Keep revolving debt below 30% of available credit To reduce the impact that high balances can have. However, the average utilization rate for those with credit scores of 800 or higher was just 6.1%, according to LendingTree.
“While the best way to improve it is to reduce your debt, you can change the other side of the equation as well, by asking for a higher credit limit,” Schulz said.
3. Credit history
Having a longer credit history also helps boost your score because it gives lenders a better look at your background when it comes to repayment.
The length of your credit history is the third most important credit score factor, making up about 15%.
Keeping accounts open and in good standing as well as limiting new credit card inquiries will work in your favour. “Lenders want to see that you’ve been in charge for a long time,” Schulz said. “I always compare it to a kid borrowing car keys.”
4. Types of accounts and credit activity
Having a varied mix of accounts but also limiting the number of new accounts you open will help improve your score, as each makes up about 10% of the total.
“Your credit mix should include more than just having multiple credit cards,” Schulz said. “The ideal credit mix is a combination of installment loans, such as auto loans, student loans, and mortgages, with revolving credit, such as bank credit cards.”
“However, it is very important to know that you should not take out a new loan just to help with your credit mix,” he added. “Debt is a really dangerous thing and should only be dealt with when needed.”