A 23-year-old has a 772 FICO score and a $45,000 credit limit spread over four credit cards. Will another card move him closer to financial perfection?
Erica Sandberg is a prominent personal finance authority and author of “Expecting Money: The Essential Financial Plan for New and Growing Families.” She writes “Opening Credits,” a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
Dear Opening Credits,
Hey, I’m 23 with a credit score of 772. I have the Marriott Rewards credit card, Chase Sapphire Preferred credit card, and the Chase Freedom credit card. Along with my first ever card Capital One Student credit card (only use it once in a while to keep it active for credit history), my question is … I’m pretty happy with my credit cards I have now. However I want to make sure that I’m maxing out my potential to obtain that “perfect” score.
Should I open another card? Maybe something I have overlooked that I could benefit from? Or would it be smarter for me to keep what I have and just have the accounts open longer (I think I’m at two years now). How many cards should I have open? I have been debating about getting a travel rewards card, like the Delta credit vard. Or maybe an American Express.
But is getting a credit card just to have an open account really a good idea? My total available credit is about $45,000. Of course I only use about 3 percent of that. Should I get another credit card for more accounts to show responsibility? Or just keep the ones I have now? — Stephen
You ought to be happy with the credit cards that you’re holding right now — they’re great accounts. Conduct a bit of self-back-patting, too. The credit score you’ve built is an impressive accomplishment at such a young age.
I get that your primary goal is to push those numbers all the way to the top, and that’s a fine target to shoot for. FICO, which produces the most commonly used score today (so I presume that’s what you’re focusing on), ranges from 300 to 850. Higher scores indicate lower lending risk, making you more eligible for premium products.
Most lenders would consider the scores you have at this point to be fantastic. A FICO that is 749 and above is in the “excellent” range, and there is nothing better than that. So in a way, you’ve already hit your mark. Another 100 or so points probably won’t get you any greater deals than you can get now. However, if perfection is a matter of personal pride, so be it. Here’s how you can increase the score further.
First know that FICO, the company that developed credit scoring, doesn’t publish the exact scoring formula. It’s a proprietary algorithm, and they’re not going to reveal their secret to anyone. Instead, they provide the basic elements that get assessed, and the percentage weight of their importance in credit scoring. This is what they are, and what you can do to affect them positively:
Payment history (35 percent). By always sending your payments on time, you will guarantee that this most-critical part of a score is covered. Already doing that? Keep it up. Each month that you add to this pattern helps the numbers climb.
Amounts owed (30 percent). For scoring purposes, you’ll never want to exceed owing more than 30 percent of the amount that you’re contractually able to borrow. At less than 3 percent, your ratio is terrific. Sometimes there is a delay in when the credit card companies send the most recent balance to the credit reporting bureaus, though, so the amount you spent will be factored into your score. Tip: when charging an expensive item, maintain a high FICO by deleting the debt before it gets recorded on your file.
Length of credit history (15 percent). Lenders like to see that you’ve been managing credit well for a long time, so its good to have accounts for years. You can’t speed up time, but do keep the cards you’ve started with. Mind that it is also important to charge with them, as the length of time since they’ve been used is factored in and dormant accounts won’t increase your score.
Types of credit in use (10 percent). This is where your “Should I open another card?” question comes in. It’s best to have a healthy mix of credit. You have the credit cards covered, so another is unlikely to help, but an installment loan can. While I don’t suggest borrowing money unnecessarily, if you need to finance something (such as a car) and then pay it off steadily, the result should be a numerical boost. As for the travel cards, or any other rewards card, get them only if they make sense for your lifestyle. A benefits package has no bearing on a score — it’s for the cardholder’s advantage only.
New credit (10 percent). Of course to get credit, you’ll have to apply for it, but being overly aggressive with applications can drop your score a little. It’s minor and temporary, but as you’re seeking perfection, avoid opening many new accounts too rapidly.
Follow these guidelines and your score will surely rise like the sun. Will it ever get to the brightest 850 point? That I can’t promise, but it should get mighty close.
See related: FICO’s 5 factors: The components of a FICO credit score
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