in place of our standard Did You Know explanation of a credit scoring fact, consumer credit expert John Ulzheimer shares a personal insight about his own credit score and how consumers can learn from it.
After almost 25 years in the consumer credit industry, I’ve finally found myself in rarified air, credit score-wise that is. For three of the past nine months, my VantageScore 3.0 credit score has been a perfect 850. And the months when I was not at 850, my scores were at or above 838. It seems like I’ve finally cracked the secret of maximizing my credit score.
Of course, I haven’t really cracked anything. In fact, I haven’t done anything in the past year that I hadn’t already been doing for the past two decades. I pay my bills on time, all the time. I maintain very low credit card balances relative to my credit limits. And I don’t apply for credit unless I really need to open a new account for some reason.
For all I know, I may have had scores at or near 850 for years, but I just didn’t know it. Only recently has accessing my credit scores become so easy, and free. There are so many lenders and credit-related websites giving away free credit scores that it is easy for all of us to always know where our credit scores stand on any given day. All of these free scores have permitted me to validate the effectiveness of the credit management practices that allowed me to earn and maintain high scores.
You can do exactly what I did. You can choose to forego additional debt. You can choose to make all of your payments on time, and you can certainly refrain from applying for excessive credit. If you’ll do these things, you’ll be well on your way to earning and maintaining elite scores as well.
There are, of course, a few credit scoring metrics that are out of your control. For instance, you will generally earn more credit score points if you’ve got a long credit history than if you have a short one, so if you’re a new user of personal credit, you must simply bide your time. Keep paying your bills on time, and eventually you’ll reap the rewards of an older credit file.
In addition, credit scoring models generally reward diversity in the types of consumers’ loans—for instance, a mix of credit card accounts, auto loans, and perhaps a mortgage account or two. Getting this level of diversity is also often a function of time: Lenders don’t typically issue mortgage loans to new entrants into the credit market, for example. Taking a long view, obtaining new loans in gradual, prudent fashion, and making sure to always pay your bills on time, every month—can help you build a diverse account over time.
The last time I pulled my credit reports I had 22 years of credit experience. I also had a great deal of experience managing both installment loans and revolving accounts, including credit cards and a variety of loans. This appears to have been the last piece of my credit score puzzle. Once my credit reports contained this well-aged and diverse collection of accounts, I was able to earn the additional points to maximize my credit scores.
An interesting thing about credit scores is that it seems to be easier to maintain a really high score than it is to earn one in the first place. Once the metrics that are largely out of individual control have been optimized, focus on proper management of the ones you can control.
At this point, it really is as “simple” as paying my bills on time and doing my best to stay out of a lot of credit card debt. The scores are taking care of themselves, and I’m employing a maintenance strategy rather than an improvement strategy. With time and discipline, you can do so too.