So You Want A Credit Score of 850?

So what is a credit score? Well first off FICO was founded in 1956 by Fair Isaac Company which is where we get the abbreviation of FICO from. When founded it was believed that we needed a system to help lenders determine who was more likely to default on a loan and who was most likely to repay a loan.

The scoring for your FICO has a range of 300 - 850 (in some cases 900). Everything you do that involves your social security number effects your credit score. Some times for better and some times for worse. But how do you achieve perfect credit? Well there really aren't 100% easy answers, just simple things you can do to create a respectable credit profile. The following 6 steps are the easiest steps to follow to get good credit. If you for one reason or another cannot follow these steps then you may need to take further action towards helping your credit score (we'll talk about that later)



1. You need to have at least 3 - 5 but no more then 5 open credit cards with a combination of credit cards from major lenders and 1 or 2 from places like shopping stores or gas cards. If you have more then 5 credit cards total this can effect your credit negatively

2. Keep your credit card balances less then 30% - This is key. If you have your credit cards maxed out it creates a negative score for your credit score and will damage it. Now keep in mind this does not mean you can't use the full credit balance but if you do try to pay it down before your statement cycles ends for that month so that they are either paid in full or paid down to 30% of the available credit limit (ex: Credit Limit of $1,000.00 don't have a balance carrying over to the next statement cycle of more then $300.00)

3. DO NOT CLOSE OUT YOUR CREDIT CARDS! You want to do a few things prior to closing out credit cards. 1st if you have a bunch of credit cards open you need to check and see which credit card is the oldest credit card opened on your credit profile. Think back to when you turned 18 and you got your first credit card. Did you close it or is it still out there open somewhere? Well I hope it is still open! Your oldest credit card shows when your credit history was started. This is huge! Your credit history is about 35% of your credit score number. If you were to close out your oldest credit card you eliminate your credit history start date to the next credit card that was opened; some times eliminating over 5 years of credit history! Secondly you do not want to close out all your extra cards at one time. By doing this you raise a red flag and your credit score will reflect that red flag by dropping. If you have a lot of credit card opens you need to close 2 to 3 per month, no more then that.

4. Be a homeowner and have a mortgage - This shows stability and a long credit history is associated with a mortgage. Having a long credit history is very important.

5. Avoid bankruptcies and judgments - This is obvious. These are very difficult to remove and stay on your credit report for 10 years.

6. Don’t make any late payments - Late payments hurt your credit score for up to 24 months in most cases (they can sometimes effect your credit score for longer then 24 months).

So if you can follow these 6 steps you will start to see an increase in your credit score within the first 30 days of starting the steps.

Now for those of you that can't avoid making late payment or have no other option but bankruptcies you need to look at my other blog at First Time Home Buyers - Does Bad Credit Mean No?