3 Easy Steps to Build Your Credit Score to 700 and beyond
I checked my FICO credit score the other day and just smiled when I saw the number: 832
But then I wondered, “How did it get so high, I’m no millionaire!”
First I want to clear up some misconceptions about credit. I hear people say over and over again that they don’t pay their credit card balances in full because they need to “build” their credit. This is 100% wrong.
For my entire credit history, I have paid my card balances off in full every month, so I never pay any interest or late fees. The only time to carry a balance is when your card offers 0% interest for some amount of time. You must pay it off in full before the promotional rate expires.
So without “building” credit by carrying a balance how did my score get so high?
1. Get a low limit card as soon as you are legally able to
I started with a $500 credit limit. I took the first “pre-approved” offer that I got in the mail as soon as I turned 18. Perks and interest rates weren’t important, I just wanted a card with no annual fee so I could start establishing some payment history.
2. Establish a Payment History
Use that low-limit card for your gas or meals. Pretend it’s a debit card so you aren’t spending more than you’ll be able to pay at the end of the month. I typically spent $100 to $200 a month and paid it off in full each time.
This should lead to a credit limit increase
3. Get a couple more cards with useful perks, but continue to use them in a limited fashion.
You want to keep your ratio of used credit to available credit low. So if you have $10,000 worth of credit available to you try not to charge more than $500 to $1000 per month, even if you could pay more.
This will help you maintain financial discipline and avoid impluse buys that add no real value to your life.
Assuming you started with a blank credit history your score will be in the low 700s within 12 to 18 months of getting your first card. With a score like this you’ll be offered the best interest rates on loans and mortgages.
To get to 800+ you need a larger credit portfolio and lots more time. Most of this will happen naturally as you progress through your career and life.
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