Q. I only use my credit cards to pay off small bills every month. It’s all automated and very calculated on my end. I have 2 credit cards, one with a $6000 limit and one with $2000 limit. I’m probably only using about 1 to 2 percent of my credit every month. My current FICO score is 785, and it’s been stagnant at that score for a while. But I’d like to get it up and over 800. So how would I do that?
I congratulate you for managing your credit so wisely. In fact, less than 20% of consumers have FICO Scores like yours. And getting to 800 and above is considered exceptional. So, to help you get there, the first thing you need to do is understand what goes into calculating your score. The truth is that nobody really knows how scores are calculated because these formulas are kept confidential by FICO. But, we know what the factors are that influence these scores.
Among the five factors that influence your credit score, the two most influential are the payment history and utilization ratio which account for 35 and 30 percent of your score respectively. You’ve managed these two factors successfully so far by making your payments on time and keeping your utilization low, using 1-2% of your total available credit which is below the recommended 30% utilization ratio. In your case, increasing your credit usage every month won’t necessarily boost your score. In fact, it could have the opposite effect since you will be increasing your utilization ratio. Therefore, I wouldn’t recommend focusing on that as a strategy. Getting another card just to increase your available credit when you already have a very low utilization ratio is also a strategy I wouldn’t advise in your situation.
The third factor, the length of your credit history, accounts for 15% of your credit score. And this is an area where there’s room for improvement. The older your credit history, the better. According to FICO, to get to the 800 and above, you need to have several years of excellent credit under your belt. Think about how long you have had your first credit card. Has it been more than 5 or 10 years? What’s the average age of your two credit cards? The longer you’ve had them, the greater the benefit to your score. The only way to increase the length of your history is to patiently wait for time to pass while maintaining an above average score. Based on what you have shared about your situation, you definitely seem to be on track for this.
The last two factors are new credit (how often you get and ask for credit) and your credit mix. Both influence your score by 10% each. Since you only have two cards, you ask for new credit sparingly, which is a good thing. But, since you just have credit cards, your credit mix is only comprised of one type of credit–revolving credit. Creditors like to see that you are able to manage different types of accounts responsibly. So, you should consider getting an installment loan in which you make fixed monthly payments for a period of time. This can be a personal loan, car loan or mortgage. Strategically, I suggest taking out a small personal loan that you can affordably repay in 6-12 months. As long as you make on-time payments, you should see an increase in your score. Just keep in mind that before you see a boost, you may see a decrease just because you are getting new credit and a new inquiry will be generated, maybe decreasing your score by 5 points or so.
After exploring these five factors, you can see the two areas where improvement is possible. Just remember that building your credit takes time and you will need to be disciplined and continue using your credit strategically. If you ever want a more personalized credit strategy, you can always reach out to NFCC-certified credit counselor. Your counselor can review your overall credit and financial situation and give you personalized answers. Feel free to reach out at any time. Keep up the good work!
Bruce McClary, Vice President of Communications
Bruce McClary is the Vice President of Communications for the National Foundation for Credit Counseling® (NFCC®). Based in Washington, D.C., he provides marketing and media relations support for the NFCC and its member agencies serving all 50 states and Puerto Rico. Bruce is considered a subject matter expert and interfaces with the national media, serving as a primary representative for the organization. He has been a featured financial expert for the nation’s top news outlets, including USA Today, MSNBC, NBC News, The New York Times, the Wall Street Journal, CNN, MarketWatch, Fox Business, and hundreds of local media outlets from coast to coast.