What We Can Learn From the Top 25% of Credit Scorers

November 02, 2012

One of the things that I believe is that one of the best ways to learn how to do something well is to learn from someone who is already doing that thing very well. It’s a long established tradition. When we want to improve our golf game, we get lessons from a pro. When we want to make progress in our fitness levels, we can work with a personal trainer. When we want to create a new dinner, we can turn on the Food Network and, after salivating because of the absolutely amazing way that some of the dishes are prepared, find a new dish to put on your dinner table. This concept can be translated directly into the financial world and recently it has. This article from FICO talks about the habits of those with credit scores over 785, which places them in the top 25% of all credit scores.

My first thought when I saw the headline of the article was that they probably didn’t use credit very often and had a completely “anti credit card” mentality. One of the things that I often say is that I plan to have a credit score of 0 one day because I want to live life on a cash basis, not use credit cards at all, and have no mortgage or car payments. I’m not there yet, but one day…So, were my assumptions about the top 25% correct? Absolutely not! So what can we learn from them? What habits do they have in common?

To paint with a broad brush, these “high achievers” keep their balances low in relation to their credit limits, never reach the maximum limit on their credit cards and always pay their bills on time. These are the broad outlines of their habits, but if we dig deeper, there are other habits that the vast majority of the top scoring group have in common.

This group is not as debt averse as I had imagined. These are some of their common traits:

They had an average of 7 credit cards. So, unlike my “no credit cards” mantra, these folks have an active credit profile.
They also have an average of 4 credit cards or loans with balances. Again, this is different than the “don’t carry balances” profile that I had expected.
1/3 of the group carry balances in excess of $8,500 while 2/3 have balances below $8,500.
96% of the group has never had a late payment, and of those who have, the most recent one was 4 years ago on average. If you are in a cycle of having late payments now, you can correct this and work your way toward the point where your most recent late payment is years in the past.
It wasn’t always a smooth ride for this top group, which can give hope to the rest of us. Approximately 1 in 100 has had an account go into collections, and 1 in 9,000 has had a tax lien or bankruptcy. This gives me hope that even for those who are toward the bottom end of the credit score range, the future can be changed and you can move to the top of the credit score range.
They also tend to be loyal and don’t open new accounts very often. Their oldest credit account was opened an average of 25 years ago and their newest was opened an average of 28 months ago. The average of their credit accounts is 11 years old. This looks like a picture of stability.

So what can you do if you want to be in the top 25% of credit scores? Model your behaviors after this group. It sounds like very basic and “common sense” advice but try to pay things on time 100% of the time. Keep your balances low (under 25%) in relation to your credit limit. Keep your overall balances relatively low. If you have high balances, work toward paying them down. With low balances, there is less need to shop for better rates or better deals so that you can be a loyal customer who is the model of stability. Model these behaviors and you will see your scores increase. Continue along this path and you’ll be in the top 25% and can give the rest of us tips on how to increase our scores!