This post will teach you how to improve your credit score to 800 and higher. You should always try to improve your credit score in order to get the lowest borrowing rates.
I’ve been writing about personal finance on Financial Samurai since 2009 and I have a 820 credit score today. My high credit score helped me get a new mortgage during the pandemic at 2.125% for a 7/1 ARM.
It took 14 long years and many false hopes, but I finally broke 800 on my credit score back in September, 2013. It’s 2021 now and my 800+ credit score has remained steady above 800.
The last time I checked my credit score before my 2020 home purchase was when I refinanced by primary home mortgage in the spring of 2012 before I left my job of 11 years.
My Equifax credit score actually came back at a dismal 697 because there was a late $8 electricity bill charge my tenants did not pay from three years ago. As a result, my bank said they would not go through with my refinance after I had waited for 80+ days already.
To Improve Your Credit Score, Catch & Fix Errors ASAP
I was able to fix my credit score in 10 days after I told my local utility company to write a “clear credit letter” to my bank. My credit score thankfully jumped back to 797 within three months and my refinance was complete.
What is scary about the whole thing is that I had successfully refinanced another property in 2010 with no signs of an impending hit due to the $8 late payment. This is why I urge you to check your credit score once a year to make sure there are no errors, especially if you are planning to refinance or take out a significant loan.
My latest credit score check came due to my application for the Chase Sapphire Preferred credit card I plan to use for all my travel related expenses.
I’m on a 10+ weeks a year travel mission from now on and it just makes sense to sign up for a card that provide bonus miles and points for every dollar spent. So it was with great surprise through the application process that my credit score is now 805.
In this article I’d like to highlight the main attributes of determining one’s credit score. I’ll also share my thoughts on how I was able to finally break 800. Hopefully this post will help improve your credit score as well.
The Main Components Of Determining A Credit Score (FICO)
In order to improve your credit score to 800 and higher, you need to understand the main components for determining a credit score.
They are: Payment History (35%), Amounts Owed (30%), Length Of Credit History (15%), New Credit (10%), and Types Of Credit Used (10%).
The weightings of each component are rough estimates that depend from person to person. For example, someone who just started taking out credit may have a lower percentage weighting in the Length Of Credit History component vs. someone who has used credit for over 30 years.
Let’s discuss each category to help improve your credit score.
Payment History (35%)
A lender wants to know whether you’ve been a good creditor or a bad creditor with other financial institutions. The longer you can demonstrate you’ve consistently paid a lender on time, the higher your score.
The more you’ve been late or have not paid, the lower your score. If you are first starting out, lenders will base your creditworthiness on your occupation and debt levels. They understand everybody has to start somewhere and most are willing to lend with an initial small credit line.
My story: Over the past 10 years I have never missed a mortgage payment because they are on autopay. I also never missed a student loan payment for the four years post business school because they were also on autopay. I was determined to pay my student loans on time because the government provides a rate reduction incentive after 12 consecutive months of on-time payment.
I have actually missed credit card payments around seven times over the past 14 years because I simply forgot or was traveling when my payment was due. The most recent example was my August credit card bill for $5,000+ because I was too busy watching the US Open in NYC!
I found out I was late when my credit card was declined for a $20 lunch and I had to pay cash. The good thing is that I simply called my credit card and had them reverse the $25 late fee. There was no penalty on my credit score, but I did have to pay the prorated 1 month interest on $5,000 worth of charges.
More reading: Will A Late Credit Card Payment Affect My Credit Score?
Amounts Owed (30%)
The goal is to figure out how much credit is too much for a given borrower. When a high percentage of a person’s available credit is being used, it may signal that the borrower is overextended.
The credit scores want to determine: 1) the amounts owed on all accounts, 2) the amounts owed on different type of accounts e.g. credit cards, mortgages, car loans, student loans etc, 3) whether you have balances, 4) how many of your accounts have balances, and 5) how much of the installment loan do you still owe vs the original amount e.g. car loan.
Owing a lot of money doesn’t necessarily mean you are a bad creditor. But owing a lot of money on multiple accounts which are maxed to the limit show credit risk which may negatively hurt your credit score. Lenders don’t want to lend more money to people who are already using up all their line of credit.
My story: In the past I had mortgages, student loans, a car loan for one year, and zero revolving credit card debt. My only debt now are my mortgages. I purposefully try to keep my primary mortgage at around one million dollars because I think that is the ideal mortgage amount for tax benefits based off my income. One million dollars is a high absolute amount, but it is manageable based on my net worth. This amount helps buttress the point that owing a lot of money doesn’t mean you are a bad creditor.
I used to have an AMEX corporate card that had a $100,000 credit limit. The most I ever spent was around $65,000 one year I was traveling around like crazy and the bills were always paid on time. Now I’ve got a personal credit card with a $35,000 limit, but I only charge less than 10% of the limit on average a month and always pay it off. I think it really helps my credit score that I’ve never come close to ever maxing out my credit card limits.
Finally, although my student loan re-payment schedule was for 10 years, and later extended to 20 years for financial arbitrage reasons. I ended up paying off my business school loans within four years because I was just sick of having student loan debt. Paying off a loan relatively early helps prove your credit worthiness.
Length Of Credit History (15%)
The general math is that the longer your credit history, the higher your credit score all things being equal. Credit score companies will ascertain the age of your oldest credit account, your newest credit account, and the average age of all your credit accounts to get a big picture. Another variable is the frequency by which your credit accounts are used.
My story: I think the length of credit history is the main variable which put me over the 800 credit score. For the past 14 years I’ve demonstrated myself as a good creditor who paid on time on amounts big and small for various types of credit. I have not taken on any new significant loans over the past eight years and have instead reduced my debt levels over time.
It’s important to highlight that my overall income took a big hit over the past 16 months since I left my day job. A higher debt-to-income ratio poses a risk to people wanting to get new credit. However, I was grandfathered into my existing lines of credit so institutions aren’t going to be taking away access.
I postulate that if I continue paying all my bills on time with a lower income level, then I may look even more creditworthy to lenders if my debt stays constant or declines. Getting more new lines of credit will probably prove difficult if my income stays the same.
New Credit (10%)
If you open up multiple new credit lines in a short period of time, research shows you are of higher credit risk. The theory is that there may be an emergency cash crunch you are facing that encourages you to open up new lines of credit with the risk of not paying them off.
My story: I’ve never applied for new credit more than twice a year because I’ve always been wary of opening up new lines of credit too quickly. The biggest temptation is when I go to a retailer and they ask me to apply for a store credit card to get an immediate 10% off my purchase.
I’ve succumbed to such temptation when I spent about $1,200 at Banana Republic for a suit and work clothes. I also opened up a Home Depot credit card to get the same 10% discount while doing a $5,000+ landscaping project several years ago. I closed both accounts after 12 months.
These two retail credit cards probably hurt me at the margin. But the credit amounts were so small as a portion to my income that I don’t really think it mattered much.
Types Of Credit Used (10%)
Credit score evaluators will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. More is not better, just like only having credit card and a mortgage isn’t better.
My story: I’ve had basically every type of common loan there is as I’ve entered new stages of my life. The types of credit used follows a typical pattern for consumers who graduate from college, get a job, go to graduate school, buy a home, and potentially have children. My story is nothing special and this 10% weighting should probably have full weighting because my types of credit used are not ringing alarm bells.
Conclusion To Getting A Better Credit Score
Before I broke the 800 credit score barrier, I thought that anything above a 760 credit was all the same: excellent. After all, the average credit score for an approved mortgage applicant is about 762 and what loan is going to be bigger than a mortgage?
Now that my credit score is over 800, I want to whimsically start my own club 800+ club. We’ll give ourselves secret handshakes, have secret pass codes to the world’s hottest establishments, and tell each other old war stories.
Of course I’m joking, but with employers and even online dating sites scrutinizing credit scores more now, credit scores are no longer just for borrowing money at a low interest rate.
By focusing on on-time Payment History and a manageable Amount Owed you are 65% of the way there to improve your credit score. The remaining three variables will naturally just come over time so you shouldn’t worry about doing anything different or special. Here’s to optimizing your credit profile!
Best Cash Back Rewards Credit Card
Looking for a great cash back credit card thanks to your solid credit score? My favorite is the Chase Freedom Unlimited credit card. Given you know how to improve your credit score, it’s now time to reap the benefits!
- Earn unlimited 1.5% cash back on all purchases
- No annual fee because annual fees are terrible
- 0% introductory APR on purchases for 15 months
- Get a $200 bonus after you spend $500 in the first 3 months
- Redeem cash back with no minimums
- Rewards don’t expire as long as your account is open
Pay Off Your Debt Faster
If you don’t have enough cash, getting a personal loan from Credible is a good place to start.
Personal loan rates have come down significantly in comparison to the average credit card interest rate. Thus, if you have expensive credit card debt, consider consolidating your debt into a lower interest-rate personal loan.
Credible has the most comprehensive marketplace for personal loans. Up to 11 lenders compete for your business to get you the best rate. Get real personal loan quotes in just two minutes after you fill out an application. Check out Credible today and see how much you could save.
For further suggestions on saving money and growing wealth, check out my Top Financial Products page.
In addition, if you enjoyed this article and want to get more personal finance insights and tips, please sign up for the free Financial Samurai newsletter. You’ll get access to exclusive content only available to subscribers.
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Gary M. says
Holy Cow, what a great read. So nice to be with like minded people. Have only had credit for 22 months with a current 760 FICO; my goal was AMX Gold, now its FICO 800. I check my score every day; its very hard to find people who talk the talk who live below their means with low util and low dti ratios. I only know one person (my mechanic) who is an 800 member. Love you guys for your like minded interests. I have a high income and have always used cash until the world of FICO showed up. Its a great hobby, thanks for sharing.
Jennifer Scarlata says
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kudos man you really did a great job
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I actually began getting curious about increasing my credit score since I applied (and was approved) for my second credit card last night. I have had my first credit card just shy of two years plus I have student loans from when I went to college (got my Associate’s in Electronics Engineering Technology; started in fall 2013 and graduated in Spring 2015). I can easily pay off my student loans now with money left over, but I have been making hefty payments to pay off the remaining $8k so I could get a better score.
When I applied for my credit card last night (through Citibank), they gave me my credit score of 761. Pretty excited that it’s that high for being only 21, but I want it to be better. Since I never miss payments and always pay in full, I guess the only thing I have to do is give it time, right?
Yes, paying on time over time is good but also not closing credit cards after opening. Instead of closing every credit card you stopped using, just destroy cards but keep credit card account open. I would only advice doing this if there is no fee for the credit card. Credit cards that have annual fee should be closed if you aren’t using.
I smell some baloney… I have worked in banking for 23 years in a variety of jobs and have never seen someone with a credit score over 680 turned down for anything… and no credit card (and I worked at Citi bank in card services at one time) would keep you from using your card because of payment that was not even month late.
Not true. AMEX will decline charges if you haven’t paid the bill yet. Period. It’s their way of “reminding” you.
Credit Kangaroo says
If you are checking your credit score regularly, I’d recommend making sure that you’re actually looking at a FICO score. Otherwise, the score you’re looking at could be way off from the “real thing.”
Some credit cards offer FICO scores on monthly statements for free, like Discover. Barclays and Citi also offer scores.
Be wary of buying a credit score if it doesn’t explicitly say “FICO.”
Rather than focusing on your score, I recommend focusing on learning the ins and outs of your report and how that affects your score. Your real reports ARE available for free annually.
Except for a home mortgage, you should pay cash for everything. Have an +800 credit score is cool, but you’re still blowing perhaps thousands away over the life of your loan — money that could be in your wallet. Concentrate on being debt-free instead of being a perpetual slave to lenders.
That is great advice assuming no opportunity costs. However, the stock market has averaged over 8% return per year since the 70’s. Paying thousands of dollars in interest to a lender every year is a great deal if you are earning higher than that with invested dollars. Some of these 30yr loans are around 3-4% interest which is a super deal for those that invest.
One Cent at a Time says
You got a company at 800+ club! cheers :)
I just checked my credit today and I’m at a 769 for 2 companies and a 777 for 1 company. I just paid off my car loan, have about a bajillion dollars left in student loan money (the real number hovers around $175k – currently 28, graduated from grad school 4 years ago), and no credit card debt. I think the only things left to do to increase my credit scores is to wait for time to pass and to buy a house. :T I played with the credit calculator thing and it said that, even if I keep my credit usage low (<15%), pay off all my loans, AND have a mortgage, my score will only increase to 792. T_T' Whyyyyyy…
Just a question – could paying off my loans too quickly negatively affect my credit score? Once those are done, I'd be just down to one credit card and (hopefully by then) a mortgage. My boyfriend and I are in debt pay down mode, snowballing our student loans like crazy, and will hopefully be done with both his student loans and my student loans in a little over 4 years. If I'm left with just one revolving debt card and no installments, will that hurt me instead of help me?
PS – I'm a newbie to your site, but I've been stalking for about 2 hours now and am hooked. O_O So addicted…
Thanks! :) Other than a moment of bragging rights, I think there is little difference between a score of 750 vs 849. I tried to lower my car insurance rates with Esurance the other day and there was nothing they could do to lower it so I still find myself switching car insurance companies every 6 months for the best rates.
Also, if I apply for credit card and don’t list employment, I will still get declined most likely.
BTW, high score and income are not related because I haven’t been employed for about 11 months out of the year so it may be possible to reach 850 without being employed.
I simply pay my bills on time. I never borrow on credit cards and don’t use my credit card utilization.
There is no silver platter treatment for 849 credit score. You don’t get an award or special deal when signing up for credit card or going to hotel. It is just like everyone else.