Congratulations, you’ve worked your way to a good credit score. But why settle for good credit when you could have excellent credit? Here are five tips to help you on your journey to the famed 850 credit score.
1. Pay down debt
First and foremost, if you want to transform your score, you’ll need to pay down your debt. Carrying a large debt load — even if you’re making your payments on time — isn’t good for your credit score. If you can reduce the amount you owe to less than 30% of your maximum combined credit limit, you’ll notice an increase in your credit score. When deciding which debts to pay off first, and to save money in the long run, look for those with the highest interest rates.
2. Diversify your credit
Diversifying your credit is another way to transform your score. In fact, 10% of your credit score is based on the kinds of credit you use. If you currently have only good credit credit cards, consider adding other loans to your name. Your ability to pay off a variety of debt in a responsible manner will reflect favorably on your score.
3. But don’t diversify too much
It’s wise to manage more than one kind of account, but don’t go credit application crazy. There are two dangers associated with applying for, or opening, too many new credit accounts. First, a large number of inquiries within a short period of time will lower your credit score — that is, unless you’re rate shopping for loans within a 30-day window. Second, opening too many new accounts will lower the average length of your credit history, which can also ding your credit score, since the length of credit history is 15% of the score.
4. Shop smart
It may seem obvious, but don’t charge more than you can afford to pay off. Charging up and maxing out your cards can be harmful to your finances and your credit score. Spending too much puts you at risk of carrying too much debt and not being able to make your payments on time. Not only will you have to pay more interest, you’ll also be in jeopardy of seeing your good credit score drop to a low credit score.
5. Check for gains
Finally, be sure to check your credit report. You can see whether your efforts have been successful, and if they have, how much your score has improved. Furthermore, credit reports can contain errors, so it’s a good idea to keep an eye on yours and get any problems fixed right away — before they hurt your chance at securing new credit.
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