Study shows habits of good credit users

While many consumers today are aware of just how big a role their credit score plays in their everyday lives, a large number might not know exactly what kinds of factors, and therefore habits, go into comprising the very best credit rating available. Fortunately, a new study sheds light on these behaviors.

Among the roughly 50 million people who fall into the absolute highest range of credit scores, there are a number of common habits that allowed them to boost their ratings to more than 785, according to a study by the credit monitoring bureau FICO. These “high achiever” borrowers, who comprise 25 percent of everyone who has a credit score nationwide, come from all kinds of demographics and backgrounds.

The general case

As a group, these high achievers all tend to keep low balances as compared with their actual credit limits, never maxing out their cards, the report said. And of course, they always make their payments into their various accounts on time and in full.

“Higher credit scores can be the key to achieving some of life’s most important dreams: buying a new car, owning a home, putting a child through college, or taking a dream vacation,” said Anthony Sprauve, credit score advisor for myFICO. “The good news is that by understanding and consistently practicing behaviors that can lead to high credit scores, anyone can become a FICO high achiever.”

Some statistics

While it may run counter to what many consumers believe about borrowing, one characteristic nearly all these high-credit score borrowers share is that they actually have a large number of accounts in their names, the report said. For instance, the average high achiever has seven cards overall, both open and closed. That includes either loans or credit cards with at least outstanding balances.

However, only about one-third of these borrowers owe more than $8,500 on all the accounts unrelated to their mortgages, the report said. The remaining two-thirds are far better at keeping their balances low.

Further, 96 percent of these borrowers have never missed a payment into one of their accounts, the report said. Of the remaining 4 percent who have, the average for when that missed payment took place was four years ago. In all, less than 1 percent of high-score consumers are currently behind on a payment.

That is not to say, however, that all these borrowers have perfectly clean credit histories, the report said. About 1 percent of them have a past collection of some kind listed on their credit report, and one in every 9,000 has gone through bankruptcy or tax liens, which indicates that even in extremely dire circumstances, diligent borrowers can rebound.

Finally, it’s important to note just how experienced these borrowers are when it comes to dealing with credit of all types, the report said. On average, the oldest account such a borrower has in their name was established 25 years ago, and their newest was slightly more than two years old. The typical age of one of their accounts is about 11 years old. This goes to show just how important it is to maintain accounts for some time while refraining from opening too many new ones.

“While people with a high FICO Score are not perfect, their consistently responsible financial behavior usually pays off over time,” Sprauve said. “In a challenging economic period, the fact that we all have a chance to be high achievers is very good news. The lesson from these high achievers is that it’s never too late to rebuild and score high.”

What to know

A credit score takes a large number of factors into account, meaning that consumers who want to improve theirs will likely have a good amount of work to do if they want to get to this “high achiever” level. However, it’s important to note that 65 percent of a borrower’s rating is impacted by just two factors: payment history (35 percent) and credit utilization (30 percent). So again, by making all payments on time and keeping balances as low as possible, improving a score can be a relatively simple process, especially for those who are diligent and willing to put in the time.

Another way you may be able to improve your credit rating is by ordering a copy of your credit report. This is true because in some cases, there may be unfair markings listed on this document which may be having an adverse effect on your overall credit rating. If you can identify these listings, you may be able to work with a credit repair service to clear up the issue, and potentially return your credit score to where it deserves to be.

Posted in Credit 101
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