Despite what you may think, top-notch credit scores are achievable by average Americans, and without too much extra effort. Thanks to the folks at the Fair Isaac Corporation, creators of the widely used FICO credit score, we know quite a bit about the habits of people with the highest FICO scores. And it may surprise you to learn that most, if not all of them, aren't much more than good old common sense.
1. They pay their bills on time
This is the most obvious habit that leads to good credit, but it's also the most important, so it's certainly worth discussing. Your payment history is the highest-weighted category of information in your FICO credit score, accounting for 35% of the total. Basically, if you pay all of your bills on time, this category will provide a nice boost to your score.
Not surprisingly, 95% of consumers with FICO scores of 800 or higher have a flawless payment history -- that is, no delinquencies whatsoever. (Note: A score of 850 is perfect, and over 700 is generally considered "good.") Just 1% of this group has a collection listed on their credit report, and virtually nobody in the highest credit tier has a public record on theirs.
If you have late payments or collections on your credit history, it's not a credit score death sentence. These negative items matter less as time goes on, and most drop off completely after seven years.
2. They keep their credit card balances low -- but not zero
It's a common misconception that not carrying any credit card balances at all is essential to maximizing your credit score. In reality, it seems that while it's certainly true that using less of your available credit is generally better, carrying no balance at all can actually hurt your score.
The average 800+ FICO achiever uses just 4% of their overall revolving credit limit, with no more than 10% of any single credit line used. In other words, if a consumer in this group has a total of $10,000 in credit limits, he or she would carry balances of roughly $400, on average.
In fact, when I interviewed perfect FICO score achiever David Howe a few years ago, he showed me two of his personal credit reports, pulled just a day apart. The first one showed a score of 849 (a point shy of perfect), and contained a small credit card balance on one account. The second, from just a day later, showed a 25-point drop. The difference? Howe paid off his credit card, and the second report reflected his zero balance.
3. They don't close too many accounts
Fifteen percent of your FICO score comes from the length of your credit history, which includes such time-related factors as the age of your individual credit accounts, the age of your oldest account, and the average age of all of your accounts.
One habit that high achievers tend to have in common is leaving their credit lines open for a long time, and having a long-established credit history. The average member of the 800+ FICO score group opened their first account more than 25 years ago (and still has it open today), and their average revolving credit account was opened nearly 12 years ago. Keep in mind that if you open a new credit account, it can bring down your average significantly, potentially causing your FICO score to take a hit.
4. They are highly selective when it comes to applying for new credit
Opening new credit accounts can affect your score in a couple of ways. In addition to lowering the average age of your accounts and hurting the "length of credit history" category discussed in the last section, there's a separate FICO category specifically for new credit, which accounts for 10% of your score. This includes accounts that you've opened recently, as well as occasions where you applied for credit, whether or not a new account was opened.
Less than 35% of FICO High Achievers applied for new credit once or more within the past year (the scoring formula only includes inquiries from the last year). And, their most recent account was opened 15 months ago, on average.
5. They use several different kinds of credit accounts
The fifth category of FICO scoring information is "credit mix," which bases 10% of your score on the variety in your credit report. And while the FICO creators say that this category is more important for people without much other information, it does play a role in everyone's score. The logic behind including this information is that lenders want to see that you're responsible with all types of credit -- not just one or two.
Therefore, the highest achievers tend to have several types of credit accounts, such as a mortgage, auto loan, credit card, and/or store credit line, just to name a few.