FICO, the credit scoring system of account, rates people for creditworthiness on a scale that ranges between 300 and 850. In the year 2016, the average American had a FICO credit score of 700, a very encouraging number. The current average score is an improvement over 2015, when the average rested at 695.
FICO terms only credit scores over 750 as high-achieving, and 40% of Americans belong to that category. One in four Americans has a credit score in the 800-to-850 category, which gives them the very best of offers on every financial product.
The average American owns six credit cards, and owes close to $9,000, using about 15% of the spending limit available on those credit cards. With about one in two Americans possessing credit histories showing no delinquencies, there is every chance that more Americans will soon enter the very highest credit score tiers.
What makes the high achievers different from the average ones?
People with very high credit scores are not necessarily very different from anyone else. They don’t play it safe by owning very few credit cards, for example. Rather, they tend to own more credit cards and use them more frequently. The difference only lies in the level of financial self-restraint and self-awareness that they possess. Those with high creditworthiness tend to use very little of the credit line available to them, averaging around 4%, as opposed to 15% for everyone else. This makes a huge difference because credit utilization ratios are weighted at 30% in FICO’s calculations.
What can you do to get your credit score up there?
In general, it isn’t how much money you make that makes you creditworthy. You can make $9,000 a year (the amount a person waiting tables at a restaurant in a small town makes), and still possess a stellar over-800 score. What it takes, is the ability to run with the system — to use credit, but pay it off in time.
Wherever your credit score may be, these tips can help you improve it.
Keep a low utilization ratio: If you have $10,000 available to you on your credit cards, it would be best if you never used any more than $1,500 across all of them. If you want to use more credit, you should simply wait until your card companies will raise your limits (applying for new cards isn’t a very good idea, as every new application drags down your score). It’s important to remember that you don’t want zero credit utilization. With zero utilization, FICO doesn’t have a way to judge your creditworthiness.
Be regular with your payments: You need to do more than be regular with your credit card bills; you need to pay attention to your rent, your mortgage and your utility bills, as well. Everything needs to be paid on time.
If you do owe plenty on your cards and haven’t been regular, you need to put all your effort into fixing these problems. One of the first things to do is to order a copy of your FICO and other reports and study them for erroneous negative entries. If you find one, you should report it, and have it removed. Doing so should quickly raise your score a few points.
If scouring your credit reports for errors and pursuing people over the phone to correct obscure mistakes seems too difficult, however, there are services that offer credit repair services. Using credit repair specialists, like at this site http://creditrepair.company/, can easily pay for itself with even a couple of errors found and corrected.
Being regular with your bills and payments, however, is the only way to live. It can be a tremendously rewarding feeling when you see the improvements to your credit score. A great credit score simply buys you a better life.
Byron Simpson is a qualified business/finance writer expert in investment, debt, credit cards, Passive income, financial updates. He advises in his blog finance cent.