Graham Stephan: How to Get a Perfect Credit Score for Free

A high credit score can be worth thousands of dollars. Here's how to get one.

Your credit score is a key part of your overall financial health. Consumers with higher credit scores qualify for lower interest rates when borrowing money and can get credit cards with more features. Good credit also comes in handy anytime you need to go through a credit check, which can be required for everything from renting an apartment to setting up cellphone service.

Since there are many factors that go into credit scores, people sometimes wonder about the best way to improve their credit. Personal finance enthusiast Graham Stephan recently went over how to get a perfect credit score in a Twitter thread, and he shared several useful tips.

Understand the factors that go into your credit score

There are multiple types of credit scores out there, but your FICO® Score is generally considered the most important. That's because it's the most widely used type of credit score by lenders.

Five factors are used to calculate your FICO® Score. Here are those factors and how much of your score they make up:

• Payment history (35%): Your record of on-time and late payments.
• Amounts owed (30%): The percentage of your total credit that you use.
• Length of credit history (15%): The age of your credit accounts, including your oldest account, newest account, and the average age of all your accounts.
• Credit mix (10%): Your mix of credit accounts, such as credit cards, auto loans, mortgages, etc. Having a more diverse credit mix with multiple types of accounts is better than having a single type of account.
• New credit (10%): Applications for new credit.

Stephan's tips mostly focus on the first three factors. This makes sense, because they carry the most weight. Here's what Stephan recommends.

Set up autopay to avoid missed payments

For a high credit score, the most important habit is paying on time. Even a single late payment can cause your score to drop by over 100 points, and it can stay on your credit file for up to seven years.

The good news is that late payments technically only count against you when they're at least 30 days late. You can get charged a late fee before then, but it won't hurt your credit until the 30-day mark.

Stephan suggests setting up autopay for your minimum credit card payment. You could also set it up for your card's statement balance so it's paid in full every month. Either way, autopay will ensure you don't have any late payments.

Get the highest credit limit possible

The second biggest-part of your FICO® Score is your amounts owed. This is also called your credit utilization ratio, and the lower it is, the better. The rule of thumb is to keep your credit utilization below 30%. For example, if you have a $1,000 credit limit, keep your balance below $300.

To maintain a low credit utilization, Stephan recommends getting the highest possible limits on all your credit cards. You can do this by requesting a credit limit increase with each card issuer. But he only recommends this if you don't have any spending problems. The point of a higher credit limit is to keep your credit utilization lower -- not to spend more.

Don't close your oldest credit card

Older credit accounts are good for your credit score, so it's recommended to keep your oldest credit cards open. It's not necessarily a huge issue if you close an older card at some point. Closed accounts still remain on your credit file for 10 years and keep contributing to your credit score. But it's better to keep them open if possible.

Look for issues on your credit report

If there are any issues on your credit report, fixing them could be a quick way to boost your score. You can get your credit report from all three major credit bureaus at AnnualCreditReport.com. You're legally entitled to a free annual credit report from each credit bureau, but they're currently offering free weekly credit reports through 2023.

A free credit score and monitoring service is also a good way to stay up to date on your credit history. Several credit card companies offer these services to cardholders.

Fix negative items that are weighing down your credit

If you find negative items on your credit report, first check if they're legitimate. To fix credit report errors and items that should have fallen off by now, file a dispute with the credit bureau that issued the report.

For legitimate issues, the best fix will depend on what the issue is. Here are some of the most common along with good fixes that Stephan suggests:

• Limited credit history: See if someone you know with good credit will add you as an authorized user on their credit card. This allows you to piggyback on their credit history with that card.
• High credit utilization: Pay down your credit card balances. Another option is to open more credit cards so that you have more available credit. Keep in mind that this only works if you avoid using that credit to charge more.
• Late payments: Make a payment as soon as possible to get current on the account. Even if it has already gone on your credit report, a payment that's 30 days late is better than one that's 60 or 90 days late.
• Negotiate debts: If you have any accounts that have gone to collections, see if you can settle it and get it taken off your credit report as part of the settlement agreement.

Stephan's tips are effective ways to raise your credit score. If you have some previous credit missteps, like missed payments, it could take time to rebuild from that. But all the advice above will help your credit, and with enough time, you'll get to the excellent credit mark.