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How to Improve a Good Credit Score

Posted By Jim On 01/18/2010 @ 7:06 am In Credit | 21 Comments

In 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 [3]. 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 [4].

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 [5] 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 [6].

Find Areas for Improvement

Start by getting your credit score from Credit Karma [7] and hitting up their Report Card [8]. 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 [9] 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 [10] 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 [11])

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[1] Tweet: http://twitter.com/share

[2] Email: mailto:?subject=http://www.bargaineering.com/articles/how-to-improve-a-good-credit-score.html

[3] improve their credit score: http://www.bargaineering.com/articles/7-steps-to-improve-your-credit-score.html

[4] good credit score: http://www.bargaineering.com/articles/what-is-a-good-credit-score.html

[5] credit utilization: http://www.bargaineering.com/articles/credit-utilization.html

[6] dropped 14 points because of a credit card inquiry: http://www.bargaineering.com/articles/new-credit-card-costs-14-fico-points.html

[7] Credit Karma: http://www.bargaineering.com/articles/r/creditkarma.php?tag=impvGoodScore

[8] Report Card: https://www.creditkarma.com/report

[9] hard inquiries removed if they were unauthorized: http://www.bargaineering.com/articles/how-to-remove-unauthorized-hard-inquiries.html

[10] request your credit reports: http://www.bargaineering.com/articles/review-your-credit-report-annually.html

[11] fosforix: http://www.flickr.com/photos/fosforix/3007393167/sizes/s/

Thank you for reading!