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How to Achieve a Credit Score of 700 or Higher

How to Achieve a Credit Score of 700 or Higher - Your credit score is a crucial aspect of your financial health. It's a three-digit number that lenders use to determine how reliable you are when it comes to repaying debt. A high credit score shows that you have a history of paying bills on time, whereas a low credit score can make it difficult for you to get approved for loans or credit cards. If you're looking to improve your credit score, there are a few steps you can take to achieve a score of 700 or higher.

First, it's essential to understand what makes up your credit score. The most common scoring model used by lenders is the FICO score, which ranges from 300 to 850. Here's a breakdown of how your FICO score is calculated:
  • Payment history (35%): This refers to whether you've made payments on time and in full.
  • Amounts owed (30%): This includes how much you owe on different accounts, such as credit cards and loans.
  • Length of credit history (15%): This considers the age of your accounts and the average age of all your accounts.
  • Credit mix (10%): This looks at the types of credit you have, such as credit cards, loans, and mortgages.
  • New credit (10%): This considers how many new accounts you've opened recently.

How to Achieve a Credit Score of 700 or Higher

Now that you understand how your credit score is calculated, let's dive into some actionable steps you can take to improve your score.

1. Pay your bills on time

As mentioned earlier, your payment history makes up 35% of your FICO score. This means that paying your bills on time is the most critical factor in improving your credit score. If you have missed payments in the past, it's essential to get back on track and make payments on time going forward. Late payments can stay on your credit report for up to seven years and can have a significant impact on your score.

One way to ensure that you make payments on time is to set up automatic payments. This way, your bills will be paid automatically each month, and you won't have to worry about missing a payment. If you're unable to make a payment on time, contact your creditor and try to work out a payment plan or deferment.

2. Keep your credit card balances low

The amounts owed on your credit accounts make up 30% of your FICO score. This means that the more you owe, the lower your score will be. Keeping your credit card balances low is an effective way to improve your credit score. Ideally, you should aim to keep your credit utilization rate below 30%. This means that you're only using 30% or less of your available credit.

If you're carrying a high balance on your credit cards, consider paying off as much as you can each month. This will not only improve your credit score but also save you money in interest charges.

3. Increase your credit limit

Another way to improve your credit utilization rate is to increase your credit limit. If you have a good credit history, your credit card company may be willing to increase your limit. This will give you more available credit, which can help improve your credit utilization rate. However, it's important to remember that this strategy only works if you don't use the extra credit. If you use the extra credit and max out your cards, your score could actually decrease.

4. Don't close old credit accounts

The length of your credit history makes up 15% of your FICO score. This means that the older your accounts are, the better it is for your credit score. If you have old credit accounts that you no longer use, don't close them. Closing old accounts can lower the average age of your accounts and decrease your credit score. Instead, keep the accounts open and use them occasionally to keep them active.

If you have a credit card that you no longer use, consider keeping it open and using it to make small purchases every few months. This will keep the account active and help improve your credit score over time.

5. Diversify your credit mix

The types of credit you have make up 10% of your FICO score. Having a diverse mix of credit can help improve your score. This means having a mix of credit cards, loans, and mortgages. However, it's important to note that you shouldn't take out new loans or credit cards just to improve your credit mix. Only take out credit that you need and can afford to repay.

If you don't have much credit history, consider getting a secured credit card. A secured credit card requires a security deposit, which acts as collateral for the credit limit. Using a secured credit card responsibly can help you build a positive credit history and improve your score.

6. Monitor your credit report

Finally, it's important to monitor your credit report regularly. Your credit report contains information about your credit history, including your payment history, credit utilization, and credit accounts. Errors on your credit report can lower your score, so it's important to check for accuracy and report any errors to the credit bureaus.

You're entitled to a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once a year. You can also use credit monitoring services to keep an eye on your credit report and receive alerts when there are any changes.

In conclusion, achieving a credit score of 700 or higher takes time and effort, but it's worth it in the long run. By paying your bills on time, keeping your credit card balances low, and diversifying your credit mix, you can improve your score and increase your chances of getting approved for loans and credit cards with favorable terms. Remember to monitor your credit report regularly and report any errors to the credit bureaus. With these tips, you can achieve a high credit score and maintain good financial health.
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