Your credit score can be your financial passport to a loan or credit card approval, renting an apartment or getting a better rate on insurance, so it’s important to know what kind of behaviors can help you build excellent credit.
Experian examined consumer data based on the different tiers of VantageScore 3.0, a credit-scoring model, to give consumers an idea of which behaviors build great credit.
As it turns out, there’s no magic to establishing excellent credit. It’s simply a matter of learning good credit habits and practicing them.
What is VantageScore?
VantageScore is a credit-scoring model developed by the three major credit reporting bureaus: Experian, TransUnion and Equifax. It ranges from 300 to 850 and has five tiers:
300-499: Deep subprime
781-850: Super prime
While the VantageScore isn’t as widely used as the FICO score, it’s calculated with many of the same factors and is a good indicator of overall credit health. Therefore, these habits can help you establish excellent credit regardless of which scoring model you (or a lender or landlord) use.
1. Pay bills on time
Making payments on time is one of the most important ways to establish excellent credit. The Experian data support this notion, showing that 100% of super prime consumers and 97% of people with prime credit have no late payments on their credit reports.
Takeaway: Make a habit of paying on time, every time. If you do have any delinquent bills, get caught up as quickly as possible. Late payments can stay on your credit for up to seven years, but your recent payment history has a greater effect on your score.
2. Keep your credit card balances low
How much debt you carry on your credit cards relative to your available credit — also known as credit utilization — is a good indicator of how easily you can make your debt payments. Although it’s typically recommended to keep your utilization under 30%, the lower the better. For example, prime consumers have an average utilization of 30%, whereas people in the super prime credit tier average just 8%.
Takeaway: Credit card companies typically report to the credit bureaus once a month, so a good way to keep your credit utilization down is to find out when your issuer reports your information and make a payment before that date. Another option is to make payments more than once a month.
3. Apply for credit infrequently
Every time you apply for credit, it results in a hard inquiry on your credit report, which can ding your score. Only 31% of people with super prime credit and 38% of people with prime credit had a hard inquiry on their reports in the past year. Having multiple credit inquiries in a short period of time may signal that you’re struggling financially and are using credit to get by, or you are living beyond your means.
Takeaway: Apply for credit only when you need it. Try to limit applications to once every six months to be safe.
4. Be patient
Lenders are likely to consider you a risky borrower if you have little to no credit history. The longer you’ve been using credit, the easier it is for them to gauge how responsible you are. On average, super prime consumers opened their oldest credit account 27 years ago, while prime consumers started using credit 19 years ago.
Takeaway: While the length of your credit history isn’t as important as your payment history or credit utilization, you can benefit from keeping old credit card accounts open and using them regularly and responsibly.
The bottom line
There’s no get-excellent-credit-quick scheme. Rather, it’s important to establish these credit habits over the long run. The good news is that it’s never too late to improve your credit. While negative marks may stay on your report for years, recent good behavior usually outweighs old bad habits.
This article updated June 21, 2016. It originally published May 28, 2015.