This is Part 7 of a series on how to jump from good credit to excellent credit. If you've been following along with our series, you know that we've been looking at each factor of the FICO score so you know how to enhance your score in each area.
As a reminder, here are the five factors, along with their respective weights, that contribute to your FICO score:
- Payment History (35 percent)
- Amount owed, which is the amount of credit you've used (30 percent)
- Length of credit history (15 percent)
- Types of credit used (10 percent)
- New credit (10 percent)
In Part 6, we talked about your payment history and all the different types of credit that's considered for that category. Well, guess what? You've now (unofficially) earned your "FICO Score Pro" credentials! Now, you've got the know-how and expertise you need to get your score up into the excellent credit range.
If you're new to credit, it will take you a bit longer to go from good to excellent credit because you can't suddenly increase the length of your credit history. But you'll get there with patience and persistence.
Credit Housekeeping List
Now, once you bump your score up, you want to make sure you stay on top, right? You can do it by making "credit housekeeping" a habit. Do this and you'll not only reach excellent credit, but you'll stay there, too.
Do this daily or at least weekly:
Check your credit card accounts online
Doing this often might sound like a pain, but it's so important to be diligent about this. You want to check your accounts to make sure that there are no fraudulent purchases. Most major credit cards do offer zero liability for fraud, but it can take a while to clear it up. In the meantime, your score could drop.
By checking accounts frequently, you'll catch fraud in the early stage. And check your debit accounts, too, for fraudulent activity. If your checking account gets drained, you could bounce checks.
Monitor your credit utilization ratio
While checking your online credit card accounts for fraud, take a gander at the balances, too. It's important to keep your overall ratio below 30 percent, in addition to keeping the ratio on each individual card below 30 percent. Now, if you're going for as many points as possible from this part of the score, then keep the ratio below 10 percent.
Do this every four months:
Review your credit reports regularly
You are entitled to a free report every 12 months from each of the major credit bureaus: Equifax, TransUnion, and Experian. Unless you suspect a problem, such as fraud, spread out the reports. For example, get your Equifax report in January, your TransUnion report in May, and your Experian report in September. This way, you get a glimpse of your credit over the course of a year. It's not a foolproof method of catching fraud or errors,
but it's better than getting all of your reports at one time and then waiting a year to see them again.
According to research from the National Foundation for Credit Counseling. in 2013, 65 percent of adults had not reviewed their credit reports within the last 12 months. You know way too much to be one of these people. Stay on top of this!
Do this as needed:
Review your budget and payment system
If you don't have a budget or a way to remind yourself when payments are due, then set this up right away. There are free money management tools online, such as Mint, that can help you stay on track. Not staying within a budget can lead to credit card debt. And from there, your score can start to sink.
Whenever there are changes in your life, you want to review your budget and make some changes. For instance, maybe you have a new baby in your family and now you have all the expenses that come with that little bundle of joy. Or maybe you got an increase (or a decrease) in your salary. You'll need to make changes to your cash flow and make decisions about where to cut expenses, or hopefully, where to put additional income.
This is a housekeeping duty that you need to do "as needed" because life doesn't stand still. It's like the Energizer bunny that keeps going and going and going. So your goal here is to make sure your budget still reflects your values and your needs.
Keep building your emergency fund
This will help you steer clear of credit card debt. Often, folks use a credit card to survive an emergency and that can trash your score. So when you do get an increase in cash flow, consider adding at least some of it to boost your emergency fund.
Having a solid rainy day fund can help you sail right through those unpredictable emergencies that we all encounter. Your goal? You need to cover three to six months of expenses, just in case you lose your job. If you have a family to feed, then make six to nine months your goal. Yes, this isn't easy. So just build it slowly, and over time, you'll be amazed at how much you're able to save.
Check your credit score for free
Lenders use a version of the FICO score most often, but it's expensive to get your FICO score frequently. So check out LendingTree's free credit score. With this score, you can keep tabs on your overall credit health.
You'll see a free VantageScore that is based on your information from your TransUnion credit report. And don't worry about the impact of checking your score – whether you look at a score via LendingTree or even buy a FICO score, your credit score does not go down. It's called a "soft inquiry" and these don't have any impact on your score at all.
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