With interest rates on 30-year loans at record lows and hints of a housing market recovery, more people may be considering applying for a mortgage loan. Low interest rates on auto loans may also be appealing to those looking to purchase a new vehicle. Getting a low rate on such loans can mean significant savings over time. However, the lowest rates are generally only available to those with the best credit scores.
Your credit score not only has an impact on the interest rates you receive on mortgage and auto loans, but also plays a role in your ability to obtain a business loan or, of course, a credit card. Prospective employers may also consider credit history when making hiring decisions and even landlords may do a credit check on potential tenants. Clearly, your credit score can have an influence that reaches far beyond scoring the best interest rates. If your credit score isn’t quite where you want it to be, there is good news: changing it is largely within your control.
According to myFICO, the consumer division of FICO, a FICO score of 785 within the range of 300-850 is the score to beat to be considered a ‘high achiever.’ Yet high achievers are not perfect. In fact, a small percentage of high achievers – 1% or less – have credit reports that reflect a past-due account or collection, and another 4% show missed payments. But these individuals don’t become high achievers without practicing some good behaviors as well.
As seen at myfico.com here are three characteristics that high achievers have in common:
A Solid, Long-standing Credit History
You could say that high achievers weren’t born yesterday. On average, their oldest credit account is 25 years old, while in general the average age of their credit accounts is 11 years. Individuals with higher credit scores also have fewer new accounts, with the newest accounts being just over two years old on average.
Younger borrowers and those with a brief credit history are at a disadvantage in this area. However, this factor accounts for only about 15% of the entire score, which emphasizes the importance of harnessing the behaviors over which you have control.
Responsible Management of Revolving Accounts
Having a high credit score isn’t as simple as just having an old account. There are essentially two types of credit. The loans you take out to buy a car or a house are referred to as installment credit and generally are for a fixed amount that is paid back, with interest, for a fixed amount of time. The other type of credit – revolving credit – includes credit cards and lines of credit for which you may be given a credit limit. Any amount up to that limit is yours to spend as you please – as long as you pay it back.
High achievers are responsible managers of their revolving credit. They have (or have had) a total of seven credit cards on average and use less than 10% of their available revolving credit. In other words, high achievers are not applying for every credit card offered to them and they certainly don’t max out the ones they do have. Further, they have an average of just four total credit accounts – installment or revolving – with balances. This does not mean they do not use their credit, however. In fact, about one third of these high credit scorers have total debt exceeding $8,500, not including a mortgage.
Pay On Time
As mentioned before, only 4% of high achievers have a credit report that reflects missed payments. Payment history is the most heavily weighted factor of a FICO score, accounting for 35% of your total score. Accordingly, consistently making at least the minimum payment on or before the due date for all of your accounts can have a positive impact on your credit score.
Alison Andersen is an employee of Zions Bank. Zions Direct is a wholly owned non-bank subsidiary of Zions Bank.