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How to Improve a Good Credit Score

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Credit Card on a KeyboardIn the last few years, the importance of credit scores and the publicity of that importance has shot up tremendously. With the loose credit era behind us, and banks fearful of taking on more under and non-performing loans (ie. loans not being paid on time and in full), your credit score and your credit report have become more important than ever.

So it’s natural that more and more people are asking what they can do to improve their credit score. If your score is low, then there are plenty of things you can do to improve it and plenty of places that will explain what you need to do.

But what if you have a decent or good credit score? What can you do?

What is a good credit score?

I consider any score in the first three groups on myFICO (so a FICO score of 680 and up) as a good credit score.

If you’re in the 760 to 850 category, the highest tier according to myFICO for mortgage rates, let me save you some time – stop reading. Your score is good, in fact it’s great, and there really is no reason for you to focus on trying to get it better. I’d give you that same advice if you’re in the second tier too. Instead, I’d look at the other aspects of your personal finances to see if there are some quicker wins there.

Your credit score is important but it’s not so important that you should focus all of your energy on it. If you are planning on buying a home or need a loan for a car, then it’s important to improve your score. If you aren’t, then I’d recommend focusing on other areas.

Assumptions of a Good Credit Score

If you have a good credit score then we can make some basic assumptions about you and your relationship with credit:

  • You make your payments on-time all the time. You might miss one a year by accident, but it’s so infrequent you have no trouble asking the credit card company for forgiveness and they grant it.
  • Your credit utilization is low, probably under 10% and definitely under 20%.
  • You have a nice healthy credit history of the above two points, plus no adverse actions like collections or bankruptcy, giving creditors confidence that you can handle credit wisely.

If you’re that good, it doesn’t seem like you have much to do right?

Avoid Bad Things

It’s clear that what you’re doing is working so the key to keeping or improving on your good score is avoiding the land mines in the credit score game. The three biggest ones are:

  • Don’t cancel any credit cards. Canceling credit cards will naturally bump up your credit utilization, so it’s important that you don’t cancel any of them. With credit card companies looking to cut lines of credit, they may be tempted to cut your limit or cancel your card even with your high credit score. You can combat this by making charges to some of your inactive cards, just so they don’t get swept up in these inactivity slashes.
  • Don’t make any large spikes in purchases. Credit utilization is calculated based on your statements, not how much debt you carry from month to month. If you start making lots of large purchases in consecutive months, you might see your score suffer as your utilization increases.
  • Avoid new debt. When you apply for a new credit card or new line of credit, the creditor or lender will request a hard inquiry of your credit report. This hard inquiry can drop your score by double digits – my wife’s credit score dropped 14 points because of a credit card inquiry.

Find Areas for Improvement

Start by getting your credit score from Credit Karma and hitting up their Report Card. The inquiry is a soft inquiry, since it’s not used as a lending decision, so your score won’t suffer. For the card, you need to be logged in and you’ll need to have pulled your TransUnion report at least once for it to make a determination. For our purposes, the score itself isn’t as relevant as the report card.

The report card will give your “grade” on a variety of metrics used in the FICO credit score formula. Identify the factors where you do not score an “A” and see if there’s anything you can do, or avoid, to improve that grade. For example, I have a 733 score on Credit Karma and the following are non-A grades:

  • Average Age of Open Credit Lines – 5 Years, 7 Months – C – What are my options? I can close newer cards to increase the average age (my oldest is 10 years, 4 months) but each of my credit cards serves a distinct purpose so that’s not an option. I don’t let my credit score dictate what I should do if I have other competing interests. The only thing I can do is avoid opening any new credit lines.
  • Hard credit inquiries – 2 – B – Two inquiries and it’s already a B, showing how important inquiries can be on a report. I can try to have the hard inquiries removed if they were unauthorized but otherwise the only action item is to avoid inquiries.

If your credit card gives you recommendations, try implementing them to give your score a boost.

Find Errors

Finally, you need to request your credit reports via AnnualCreditReport.com and review them for errors, regardless of how minor they may appear. If you are planning on getting a loan in the future, these errors can cause you some heartache, even if they are seemingly irrelevant address errors, if you don’t resolve them (and errors can take months to fix).

I hope this article was helpful in identifying steps you can take as someone with good credit. If you have any strategies or suggestions of things you have done to improve your score, please share them in the comments!

(Photo: fosforix)

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21 Responses to “How to Improve a Good Credit Score”

  1. Anthony says:

    Jim,

    As you mention, canceling one (or two) of your cards can be a bad thing and could hugely affect your credit utilization…

    But also as you mention in the article, canceling one (or two) of your newer credit cards can help with the average age of your accounts.

    It’s a double-edged sword, especially if you have a high limit, newer card.

    • Jim says:

      Yes it is certainly a double edged sword, I think that the credit utilization factor is much more significant than the average age factor (I have no data to back this up, it’s just based on my experience that people talk a LOT more about utilization than average age).

  2. I wonder if credit score pulls are becoming any more or less important these days during job search activities? Any ideas anyone?

  3. Shirley says:

    If I don’t owe anybody anything (not even a mortgage), use a CC for monthly purchases and pay it off at the end of each cycle, I would think my credit score should be top notch, right?

    • Jim says:

      I would expect it to be pretty good, however I’ve heard people seeing their credit scores drop when they pay off their mortgages. It’s counter-intuitive (less debt should mean you are less risky right?) but it’s true in almost every case I’ve seen.

      You are doing what I believe is the most responsible thing you can whenever you use credit – use it for the grace period and pay it off.

    • Nope. You will get dinged for not enough open accounts or account variety etc. I had the same problem for a while – your score will be fine but not great. My score really jumped over time when I got a car loan (I could afford to pay cash but got the smallest loan possible just to build my credit).

      Your credit score grades your performance to manage future debt and that is mainly based on your past ability to manage a high debt load and then how much more capacity you have to leverage up.

    • Shariff says:

      Yes and No. Yes because You are showing Credit leaders you are Responsible with Paying you bills (on time). You have to be careful using your credit line to much. No because you are using them to much, Just be careful and Never max them out.

  4. govenar says:

    There’s some other intricacies I wonder about related to closing an account and average age:
    - Some people say that closed accounts are included in the average age calculation (not sure if FICO has said officially whether they do), and a closed account will stay on your credit report for around 10 years. So the average age might not be affected for 10 years.
    - If you have newer accounts, or open new ones later, then at some point in the future the current “newer” accounts will become older than the average, and actually help the average age.
    - What if you move the credit limit from the card being closed to another card from the same issuer (though some won’t allow it)? Then your overall utilization isn’t hurt, the utilization of the other card could improve, and your average limit is higher (which could maybe help your score, but not sure).

    • Jim says:

      I’ve heard similar points made about your first two thoughts but nothing definitive.

      I’ve also advocated your third thought, consolidating accounts at the same issuer. This lets you keep the utilization and close the account, limiting the damage. Again, this isn’t backed with hard data but it makes sense intuitively.

  5. zapeta says:

    I’m in the same boat as you Jim, the items that are holding my score down are age of accounts and the number of recent inquiries. The only thing I can do is wait as the inquiries fall off and the age of accounts increases.

  6. billsnider says:

    Hi

    There is a pretty good explanation about FICO on Wikapedia. I think it answers most questions I see asked here.

    My opinion is to pay off all debt on time and keep away from things such as bounced checks, late payments and other crazy stuff like that and it will all work out.

    Bill Snider

  7. Wilma says:

    So how long till your score goes back up after a hard inquiry or CC cancelation?

  8. lostAnnfound says:

    AMEX cancelled an account last spring/summer (2009) for lack of use (hadn’t used it in years) and my score dropped 20+ points (I believe it was 28) according to Credit Karma and as of last week was still at the lower score. Even so, I am still in the highest tier, which truthfully is not an issue because I am not planning on incurring any debt, just paying off debt I have. But it seems unfair to me that I get “penalized” even though I did nothing wrong per se.

    What if I was planning on getting mortgage or car loan? Would the lender see that the account has been closed recently on my credit report? Would they know that it had been closed due to lack of use or would that even matter?

  9. pmulroy says:

    There isn’t much to do, there is no shortcut. Just pay your creditors under the terms you agreed to and wait for time to go by. That is the the only way to get your score up.

  10. jsbrendog says:

    asking for a credit increase would help too by improving your utilization, as long as you are sure that there is no hard inquiry to do so. it varies by card companies. this also assumes that even if you get a credit increase you do not change spending habits.

  11. eric says:

    Yup, once I hit the top tiers, I just stopped worrying so much. Some people are obsessed over one or two points.

  12. lisa says:

    You should bear in mind that Credit Karma is not a true FICO score (it’s a FAKO) and therefore the report card is not using the same criteria that are considered in your actual FICO score. I use Credit Karma to track my general score trend for free over time, but my purchased FICO score from TransUnion is 11 points lower than my Credit Karma score, even though they are both TransUnion products. Just one example is that actual FICO scores are barely affected by credit inquiries, but this is a major negative on the Credit Karma report card.

  13. shortsalesafe says:

    Credit scores are the most important aspect that determines your financial future. Carrying a good credit score is an asset and can pave your future towards green pasture. Thanks for sharing such a informative article here. Keep it Up.

  14. Jim says:

    When you say credit utilization is not based on month to month debt, but is based on your statements, what does that mean? your statement is a snapshot of your month to month debt, so what you said makes no sense.

    For example let’s say my current temporary credit usage of an account is 9500 dollars and the statement date is coming up in 5 days. I pay that 9500 dollars off before the statement is printed on their end, and fool the report into thinking I have 0 dollar balance by paying it off just before they print the statement.

    Is this going to help or not? They track how much credit you use up, regardless of your statement balance? Or not?

    • Doug says:

      The utilization rate reported is not based on day to day use. You could charge $2k on a $4K card. If you pay it off before they report to the CCA’s, it will report as 0%, instead of 50%.


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