Getting a top credit score is easy if you know the simple painless tricks credit raters like. This entry covers the simple basics on how to make that happen and well before you put 30 candles in your birthday cake.
Being completely opposite of general teachings of ‘If you don’t have the money you can’t afford it’, society requires you to owe people money all your life. How easy it is to borrow money depends on your credit score. What most people don’t know is it is easy to build up a top credit score in about 18 months. Much of the secret is in how you pay your bills.
Credit agencies work with data as there are way too many people to monitor any other way. Computers chug along crunching data about how you pay your bills and spend your money. They look at how big the bill is in relation to your income, how long it takes you to pay the bill, and what the bill is for. They also look at how you manage your taxes and withholdings. So a big part of getting a top credit score is to only let good data about you be considered.
One of the things credit raters consider is how long it takes you to pay your monthly utility bills. If you send in your monthly payment on the last possible day before it is considered late, credit raters assume you are just getting by and don’t have the available money to take on additional expenses. In other words procrastinators are punished with a lower credit rating if they have the money but just do their procrastination thing.
The trick to getting around that is to over pay your usage portion of the bill by about 10% each month. After about a year you should have enough credit to cover the bill. So in short the bill is already payed before you get it. Then you can keep adding to your credit to build in a comfortable margin so if you are sick and can’t pay for a month, you are not delinquent and your credit balance just goes down. This is a great idea if you have seasonal high bills. If you can afford to add more than 10% a month then do it as it gets your good credit score that much sooner.
As far as the credit raters are concerned, your bill paying is seen as perfect and are rewarded accordingly with a raise in your credit rating.
If you have an American Express card, you can buildup and keep a credit balance there as well. Seeing that you must pay off the balance every month, it just makes sense to build up a credit with American Express to over cover your typical monthly usage as the same credit rating logic applies.
Also keep in mind what you buy is considered. If you regularly buy alcohol, then pay cash for it as they could consider you to be a regular party person and that could hurt your score. Credit raters love people who appear to be serious and responsible. People who look to party every night are viewed in a less favorable light even if it is not warranted.
If you have a monthly credit card balance, pay more than the minimum due. The more you pay over the minimum, the better your credit score will be. Running balances are a double edge sword as they show you can be trusted as well as how much priority you place on paying off your balance.
Having money in your bank account to avoid bouncing checks is very important. If you bounce a check and it was your fault, that can do a lot of damage to your credit rating. Do it once and it gets their attention as they assume human error is the likely cause because it is an anomaly. Do it twice or more and pay the price as they slash your credit rating as a new pattern is being established. If it was the banks fault, ask them to inform the credit agencies so you are not punished for their error as near real time information gets to the credit agencies.
When it comes to bank loans you just have to pay extra towards the loan principal. The eventual outcome is the loan will be paid off early, and that tells the credit raters you are looking to pay off your debts as soon as possible, and once again they reward you with the means to get bigger loans by raising your credit rating even more.
If you are taking out a mortgage for a house, take the loan for 30 years but follow the payment regiment as if it were a 15 year loan. If you can’t afford that then paying an extra $100 a month towards the principal on a 30 year $100,000 mortgage and it will suddenly become about a 17 year mortgage. This will send your credit rating soaring as well as save you loads of money on interest. If you become sick or can’t pay the extra for a month or two it will have from zero to minimal effect on your credit rating. That saved money can be used to add credit to your other expenses so they are payed before they arrive.
In our sample case this behavior was eventually rewarded with a 847 credit rating out of a possible 850 along with very low interest rates after just a few years and it was more or less painless. Getting that rating did not require getting a mortgage, all it required was showing instant payment of bills. This can be done all before the age of 25 so it does not take forever nor being born with a silver spoon in your mouth. Also credit cards will likely extend well over $100,000 in credit with very enticing interest rates once you break into the 800+ range on your credit score. So yes being 25 and having a $100,000+ credit line is entirely possible even if your wages are seen as average.
The amount of time it takes credit raters to forget old behaviors depends on each rating agency. The formula seems to be shorter if you never were late as opposed to being subject to collections or defaulted on a loan. The short end seems to be about 2 years and the long end about 10 years. Changes of employment may be a factor as well if your new job pays more and you have not changed your monthly spending behavior.
So as you can see only minor belt tightening adjustments need be made to your lifestyle at the start. That may just mean less meals out and more cooking at home than you normally would, or shopping at a discount store and not a mid scale store. It is not difficult and you would do it anyways if not more if you suddenly found yourself out of work and between jobs.