Matt About Money

Go from good to excellent credit with first (and only) card


Employing good credit habits early paves the way for a great credit score

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Dear Opening Credits,
I wanted to know what the next best step is toward improving my credit score. A little bit about me: I am a recent college grad who is currently enrolled in law school and was approved for my very first credit card with Discover It. Currently, I have a $1,750 limit, and the card has been active since June. My credit score is 717. I always pay my balance in full before Discover reports my balance to creditors, and I have about an 8 percent utilization rate. — Lauren

Dear Lauren,
Ah, you’re one of those perfectionists, aren’t you? Only the very best will do, and you won’t stop until you reach the pinnacle! This quality will make you a fantastic lawyer, I’m sure. I hope you’re happy to learn that even though you’re on just your first card, you are already in good credit territory, and it won’t take much work on your part to reach excellent credit. In fact, if everyone had the same query, I’d be out of a job (and the credit card issuers would have to find some other revenue source, because they sure wouldn’t be making much money off of finance fees).

Assuming your talking about a FICO score, which ranges from 300 or 850, the score you cite is in the good-but-not-great range. More importantly, with the activity you describe, it’s still climbing. You are doing all the right things, specifically:

1. Sending payments in well before the due date. Accounting for 35 percent of the FICO score, payment history is the primary factor in achieving and maintaining a high score. The credit issuer you’re working with — Discover — is sending your account activity to the credit reporting agencies on a regular basis, including evidence that you always pay on time. As those positive notations build up over time, your scores will rise.

2.Staying out of debt. Thirty percent of the FICO score concerns credit utilization, which is how much you owe compared to the amount you’re able to borrow. Paying the bill to zero by the due date is grand, but you’ve gone a step further. You delete virtually all the debt before the issuer notifies the reporting agencies of a balance. That’s an advanced technique!

3. You’ve begun to use a credit card. Fifteen percent of the FICO score depends on the length of your credit history. This makes sense because a risk score is really a “look-back” number. The way you may behave in the future is predicted by the way you behaved in the past. With your first card, you need to be especially careful. Because your credit history is short, each mistake is magnified because there’s no long record of good behavior to balance against it.

4. You’re primed for more credit products. Ten percent of the FICO score concerns the mix of credit instruments you have and use. While one credit card is good, another in rotation is better. So is adding a loan. By showing that you can borrow and repay responsibly with a variety of credit instruments, you’ll boost your scores yet again. And because your

numbers are in hailing distance of excellent credit status, as long as you have a steady income you can probably qualify for more (and very good) products now, as long as you know you can them responsibly. So go for it! Just go slow and add a new credit line in when it makes sense, such as borrowing to buy a car. If you have student loans, those count toward your credit mix, too, so you may already be ahead in that case.

5.Not randomly and aggressively seeking credit products. I don’t get the sense that you’re applying for cards or loans all over the place and that’s good, because the final 10 percent of the score assesses the pursuit of new accounts. Yes, you have to apply to obtain credit, and each application gives you a temporary credit score nick, so do it methodically. Know what you’re eligible for and what you want, then apply judiciously. Do so and this scoring area will remain clean and won’t downgrade your digits.

To summarize, just maintain your fantastic credit habits while also adding an account or two to your credit portfolio. Once your scores hit the upper 700s, you will have moved from the “good” to the “excellent” credit territory. Good luck!

See related: Credit mix and maxing out: Undoing damage from a heavily used card


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