Whenever you apply for credit, whether it's a credit card, car loan, mortgage or even to lease an apartment, the lender will take a look at your credit history as well as a version of your credit score. What many people don't know is that credit scores are not a universal thing – there are several different companies that offer this service, and while the factors they use in giving you a score are often similar, the actual formula they use differs and will yield different scores.
For example, two of the more popular scoring systems are FICO and VantageScore. One difference between these two is that VantageScore puts more emphasis on payment history than FICO, while FICO weighs credit utilization more heavily than VantageScore.
When applying for credit, the lender decides which score they'll use, so there's not a whole lot you can do about that, but it is helpful to know what mix of conditions will give you the best score under any system.
According to credit scoring experts, in order to get as close to 850 as possible with your credit, the following needs to be in place (keep in mind that anything in the high 700's or more is good enough to make the best rates and lending opportunities available):
What makes an ideal credit score
- 3 – 4 revolving credit cards each with high lines of credit ($10,000 or more) with a low balance carried on one. (note that you can – and SHOULD – pay this balance off each month, so even if you just use it once a month, it will suffice for this purpose)
- All types of credit on your report are at least 6 months old, with at least one that is 3 years old or more.
- NO delinquent items on your report.
- 1 – 3 or less hard inquiries over the past 6 months.
- All loans are in good standing (car, mortgage, student loans, etc.)
How to get there if you're not already
As you can see, a lot of these criteria really have to do with letting time pass, and all are the result of consistent “good” money behavior like paying bills on time and using credit responsibly. If you're looking to improve your score, one example would be that if you only have 2 cards in your name, open another one then also call the other two and see if they will increase your limit to $10,000 or more.
Keep in mind that both of those actions will result in “hard” inquiries, so you’ll want to do this at least 6 months before applying for any loans where your score matters.
You don’t have to actually use that new card, or your increased limit (in fact, you shouldn’t if your goal is to get a higher score), although using one card to pay some of your regularly occurring expenses and then paying it off each month will demonstrate that you are able to use credit in the way its intended.
Keeping delinquencies down
If you have made late payments in the past (aka delinquencies), then the best thing you can do is keep paying on time going forward while waiting for the time to pass. Once late payments are several years in the past, they won't drag as much, and after 7 years they'll drop off completely.
However, once you have a legitimate late payment on your report, even if you end up catching up, there's nothing you can do to erase the record of being late, which is why the most important thing you can do to maintain good credit is to always pay all your bills on time every month. If you think you can't pay on time, reach out to the lender to request a payment holiday, which means they give you permission to be late without reporting it.