If you belong to FICO’s elite group of credit score “High Achievers,” your score is greater than 785 and you’ve already saved thousands of dollars on the mortgage and car loan interest rates.
About 50 million consumers belong to this group. If you’re not one of them, there’s still good news. Anyone can become one of FICO’s credit score high achievers. FICO recently released a report on key credit habits and financial behavior all achievers share. Here’s a quick look at them.
Keeping a Low Credit Card Utilization Ratio
The majority of the high achievers maintain a low revolving balance in relation to their available credit. This rate helps lenders assess credit risk or how likely can a consumer repay what they owe. This ratio applies only to revolving credit like credit cards, not installment credit like car loans, mortgages, and student loans.
There’s a direct relation between your ratio and credit score. The lower your ratio, the higher your credit score. This is why you have to think twice when closing a credit card account.
They Don’t Max Out Their Credit Cards
Each credit card has a limit and you’re not supposed to use it up entirely. Exceeding your credit limit, even approaching it, portends a drop in your credit score. Not only that, it can ruin one’s finances since repaying the balance of a maxed-out credit could take years.
Aim for a healthy credit balance, ideally below 10% of your credit limit. This one’s manageable for you and acceptable to lenders. Make sure you check your credit limit before charging with your credit card.
They Always Pay on Time
This is common-sense advice but one that’s also hardest to implement. Real-life examples provide us with stories of why people end up knee-deep in debt. It’s not just about sleazy marketers handing them high-interest retail credit cards and student loans. It’s mostly about the lack of willpower to establish healthy money habits.
Make it your top priority to start making timely payments. There are many ways to do it. Most people do pre-commitment strategies such as automatically paying bills through their checking accounts or paying themselves first before spending on anything.
It’s also best to commit yourself to strengthen your willpower, which actually works like a muscle. Start with simple habitual tasks that require willpower and move on to loftier goals such as quitting a credit card addiction. As always, be strategic when picking your battle. This conventional wisdom works best when you’re handling the psychologically draining task of paying off debt.
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