Good credit can’t be bought or sold; it can only be cultivated over time. And with the right financial moves – and credit strategy – almost anyone can have good credit, plus all of the perks that come with it.
Using the FICO scoring model, your credit score can fall anywhere between 300 and 850. The higher your score, the lower the risk you present in the eyes of credit reporting agencies and lenders. Likewise, the lower your score, the bigger risk you present. But you can change your score — you’ll need to put in a little elbow grease to improve it over time.
Here’s What People With Good Credit Have in Common
But, what does “good credit” look like? According to myFICO.com, a good credit score is generally considered anything over 720. With the average FICO score coming in at around 689, according to the most recent stats, it’s easy to see how a score of 720 or better doesn’t happen by accident.
The fact is, most people with good credit have a similar set of behaviors that helped lift their scores over time. Here are five financial moves most people with good credit make consistently:
They pay their bills on time.
The FICO credit scoring scale considers your payment history to be the most important factor in determining your score. Since payment history makes up 35% of one’s FICO score, it’s safe to say that those with good credit must pay their bills on time — every single month.
Credit tip: To improve your credit over time, make sure to pay all of your bills well before their respective due dates. Set a reminder on your phone if you have to, or mark your due date on your calendar.
They don’t use all of their available credit.
Another important factor in determining your FICO score is how much money you owe in relation to your credit limits. This is also commonly referred to as your “credit utilization.” People with good credit don’t generally max their credit cards out, and in fact, often keep their utilization rather low.
Credit tip: Since lenders generally like to see utilization rate of less than 30% of your total open credit, it’s important to leave plenty of breathing room between your balances and your credit limit if you can. To find your current utilization rate, take your total open credit and divide it by your total balances. If you have a $10,000 line of credit across three credit cards and a total balance of $2,000, for example, your utilization rate would be 20%.
They have long and stable credit histories.
In order to have a good credit score, you have to have a long history of taking your debts seriously. People with good credit generally have several years of credit history behind them, with plenty of proof that they can pay their bills in full and on time. Since the FICO credit scoring scale uses credit history to make up 15% of one’s score, it’s important to take this factor seriously.
Credit tip: To build your credit over time, you have to be patient. It takes time to build a long and positive credit history with a wide range of lenders — and one mistake can set you back quickly. But with the right moves, you’ll get there eventually.
They have a good mix of different types of credit.
According to myFICO.com, FICO considers your “mix of credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans” when determining your credit score. Consequently, people with the best scores often have several different types of open credit, including mortgages, car loans, student loans, credit cards, and revolving lines of credit.
Credit tip: Make sure you’re diversifying the types of credit you’re using whenever possible. Having three open credit cards with a balance and no other open lines of credit, for example, could prove harmful to your score over time.
They don’t open or close accounts too frequently.
Since opening new lines of credit – and closing old ones, which can quickly increase your utilization rate – can have a negative, albeit temporary effect on credit scores, most people with good credit don’t churn through new accounts that often. While opening a few new accounts per year won’t do much damage, opening and closing too many can cause your score to drop.
Credit tip: If you’re worried about the impact of closing and opening new accounts, take it easy. Be selective when you open new accounts and only open or close credit cards or lines of credit when you have something to gain.
Building Good Credit One Stone at a Time
A good credit score isn’t something that happens overnight. No matter who you are or what your financial situation is, it takes time to prove you are creditworthy and capable of repaying any amount of money you borrow.
But with the right moves, anyone can build a credit score they can be proud of. If you secure the right types of credit, pay your bills in full and on time, and use common sense when it comes to applying for new accounts, you should be on your way to an excellent score in no time.