I recently was very pleased to find out that my credit score had reached 800, a figure I once thought took many years. I have had credit cards for a little more than five years and have only been using them properly on a consistent basis for two years. Needless to say I never thought it would come this fast.
Of course, I don’t particularly care about my score as long as it’s a good one and I stopped actively working to increase it a long time ago. Still, seeing 800 on my report was a pleasant surprise. In addition, it’s a threshold a lot of people seem to be aiming for so I figured I would share how I got there.
It’s important to keep in mind that the following tips do not represent a recipe nor a scientific path to an 800 credit score. They’re just a summary of the things I’ve been doing (and not doing) that I believe may have had a role. In addition, my thoughts on budgeting, buying habits, debt and the like may not necessarily apply to your particular situation.
I use credit cards
In order to start building a credit history, credit cards are a must in many cases. Although they can get dangerous, I have found them to be a great tool when used wisely.
I currently have four of them. Although you can get by with just one credit card, I like to keep my utilization rates low. Requesting a limit increase and having more than one account are great ways to achieve that.
Too many new accounts in a short time can be harmful though. I usually don’t open more than one account per year.
I pretend my credit cards are debit cards
Translation: I only use them if I have the money to pay off the balance as soon as I exit the store, restaurant or online merchant. Of course, I don’t actually do that – I set up automatic payments to pay my balance in full every month – but you get the idea.
To do so, I only use credit cards in two simple ways: bill payments and planned purchases. In both cases, the transaction was budgeted for in advance. Bills are bills and are the easiest and most predictable part of my budget. One time purchases are only made if I have the money in cash, usually available in one of my budget categories.
As a result, I don’t care about my APR or interest rates. In addition, my utilization rates are systematically under control since my balance resets to zero at least once a month.
I automate whenever it’s possible
Whether it’s utilities, internet or cell phone service, I set up auto-pay on my accounts to make sure my bills are always paid on time. If you look at your credit report, you will see a section that lists all of your missed payments. Mine is empty so I do not know exactly how much weight it carries, but you definitely want to avoid any negative marks in there.
I paid off my student loan
I opened my first credit card in college. Since I was mostly well behaved, my credit score quickly reached the high 600s-low 700s range. It stayed there for years, which is why I thought reaching 800 was gonna take a very long time.
After graduation, I started paying off my student loans really fast. My monthly payments were almost 5 times the minimum. In total, I paid off roughly $20,000 in two years.
My credit score increased dramatically when I started making these student loan payments. As I was getting closer to being debt free, my score was experiencing double digit bumps almost every month. I think it got to 800 when I had about $2000 left to pay off on my student loans.
That’s pretty much it! I didn’t use any obscure or exciting tricks. Just like the rest of my financial life, getting to an 800+ credit score was a fairly boring process.
No matter what your current or future score is, keep in mind that it’s just a fun number that allows you to get a mortgage or whatever item you decide to borrow money for. I really can’t stress how insignificant it is in the grand scheme of things.
A good credit score is helpful, but it’s by no means a measure of wealth. I look at it as a discount coupon for loans, which I’m not a fan of anyways.