Many consumers may know what makes up a credit score, but they may not have the know-how to improve their score in actual practice.
The good news for consumers is that, if they know what makes up a credit score, then they’re already more knowledgeable than most about what steps to take to set themselves on the path to a score in the 800s. According to a report from CBS Moneywatch, taking a score from “good” to “great” is all about knowing how the system works.
About 13 percent of all consumers have credit scores of 800 or higher, the report said, and that’s because those people know the credit score system inside and out. They know, for example, that the combination of payment history and the amount of credit they owe versus what they have available accounts for about two-thirds of their credit score.
Payment history makes up 35 percent of a score, and something as simple as making on-time payments can provide a gigantic boost to any credit score. The report said the amount of money a consumer owes versus what they have available in credit makes up 30 percent of a score. The other 35 percent is made up of a combination of the amount of time a consumer has had credit, how much new credit they have (the less the better), and the different types of credit a consumer uses.
That 13 percent of consumers whose credit is superb all have roughly the same characteristics, the report said. When it comes to on-time payments, those people haven’t been late on one in the last seven years, and their debt levels are no higher than 35 percent of their overall limit per credit account.
As for the other third, the report said consumers with scores above 800 own four to six credit cards, and have one installment loan – like a car payment or mortgage – with an impeccable payment history. They’ve had no bankruptcies, foreclosures, charge-offs or collections at any point, and a very low number of credit inquiries in the last six months, usually fewer than three. Finally, they’ve had their credit accounts for an average of 10 years, with a small number of accounts showing 20 years of good history.
A recent Bankrate report said that “good debt” stays on a credit report longer than bad, typically an extra three years.