That impressively perfect 850 credit score may seem like an unattainable accomplishment, especially if you have suffered with past credit mistakes such as too much debt, bankruptcies, or collection accounts. A small pool of people, roughly half a percent of the population, enjoys the benefits of the top tier of credit. High credit scores give a consumer a wider variety of options in all of their buying decisions, and can save them literally hundreds of thousands of dollars in interest over a lifetime.
How can you join this group of credit elites? It may be easier than you think. Let’s look at nine smart habits of people who have a perfect credit score.
1. Create a budget
A perfect credit score is born far before a credit report is pulled. It begins with a person’s budget. Consumers in this upper credit scoring echelon understand their expenses and balance them with their incomes. Avoiding bills or thinking “I will find some way to make ends meet” sets you up for a financial meltdown. Get more involved with household bills, and understand your outgoing money to help you manage better, and avoid potential late payments or mounting debt.
2. Live within your means
It’s sometimes difficult to not yearn for a new car when your neighbor just bought one, or fantasize about an expensive vacation when your brother-in-law just took one. Don’t let these feelings cause you to spend more than you can afford. One of the main components that people with perfect credit scores share is their ability to live on their salaries and pay their bills on time without incurring crushing debt. Embrace self control. Your financial future is worth it.
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3. Plan large expenditures
Impulse purchases are not your friend! They cause you to overspend on items that you may not even really want in the big picture. If you have car fever, vacation envy, or lust for a new piece of jewelry or golf club, plan for payment in advance. Postpone the purchase until you save all, or at least the majority, of the cost. This also gives you time to decide if you truly want to spend the money.
4. Know your weak points
Nobody, not even the people who have attained an 850 credit score, is perfect. Building your credit worthiness demands that you acknowledge the areas of your financial life that derail your budget, and deal with them accordingly. Can’t resist nice dinners? Then put one in your monthly budget. Get in trouble with online shopping? Limit your purchases to one a month. The goal here is to stay out of potentially disastrous debt that leads to late payments, which tanks your credit score.
5. Pay your bills early
People with perfect credit are rabid about paying their bills on time, as it comprises 35% of the credit score. Aside from not having the money to pay the bills, some consumers have the money but forget to mail the check in on time or set up the online payment. Don’t let your disorganization mess up your credit score! Set up a monthly schedule of payment and stick to it. Look into smartphone apps that will let you set reminders that bills are due, or schedule them online ahead of time. If you have even one late payment, you can kiss your perfect credit score good bye.
6. Keep old credit cards open
Analyze those credit reports that show 850 scores, and you will most likely find at least one credit card that was open twenty years ago or longer. Length of credit history makes up 15% of your credit score, as the model likes a long trail of “proof” that a consumer successfully manages their finances. Avoid closing the credit cards you have had for a long time, and use them every few months, so they are factored into your credit history.
7. Review your credit report annually
Keeping a finger on the pulse of their credit reports is another smart habit practiced by people with perfect scores. It is shockingly easy for debtors to accidentally report a late payment, or a collection to show up that actually belongs to another person. Adopt this habit by ordering a credit report at least once a year. Review every line and make certain there are no accounts unfamiliar to you, and all of your accounts are showing correct information. If you find errors, dispute them with the bureaus as soon as possible to get them removed.
8. Utilize debt to your advantage
It’s vital to use credit to build your score. Consumers with perfect scores generally have a mix of revolving and installment debt, as the scoring model favorably rates a mix of credit in its calculation.
The point here is to use credit in a responsible manner. Charge items on your credit card and pay them off at the end of the month. This builds your credit history without getting you into financial trouble.
9. Build a savings cushion
If you talk to people with low credit scores, many of them blame it on unexpected emergencies such as a medical issue or a costly home repair. Without a savings, these expenses end up on credit cards, which racks up interest and may put the consumer over budget and behind. By chucking away a small part of each paycheck, you can build up a nest egg to use for these emergencies. This protects your finances and minimizes the chances of getting in trouble with deep debt and late payments.
Striving toward a perfect 850 credit score is a lofty goal, and takes time, diligence, and patience. Even if you don’t achieve the top score, you can still enjoy the perks a great credit score makes in low interest rates and more loan options with a score in the upper 700s. Implement these nine smart tips as soon as possible, and you will see your credit scores climb as you manage your finances intelligently and responsibly.
Using these tools, how can you improve your path to perfect credit? Let us know your plan in the comments!