Credit Scores: Is 750 the New 680?

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Illustration by Alexander Ho for TIME

Buried in the housing data of the past few days (housing volume is down over the last month while prices are slightly up) was the most interesting release: the performance report of the Mortgage Bankers Association.

This quarterly snapshot is basically a report to banks and about banks, like how many mortgages were processed and the average profit made, etc. And the latest MBA quarterly, as quoted in Mortgage News Daily, notes that 46 percent of all loans written in the first quarter were to borrowers with credit scores over 750. That’s up from 29 percent in the third quarter of 2008, a.k.a “the quarter when Lehman Brothers fell.”

(LIST: Six Problems the Consumer Financial Protection Bureau Should Tackle)

It’s not that individual credit scores are going up, but rather that lending has tightened. A score that used to be considered “elite” is now the bottom of the “very good” rung. (Note that when I use the words “credit score,” I’m talking about the widely used Fair Isaac, or FICO model. Those scores can range, in theory, all the way up to 850, though in my time as a real estate broker I’ve never seen a score above 820).

In this tight-credit world, you should strive to have very good credit. As a recent TIME Moneyland post has shown, hitting a minimum of 750 can save you thousands on car insurance. But how do you raise your score if it was already good before? If you were a 680 and were already paying your bills, what more than that is there?

(MORE: Why a Smart Consumer is a Bad Credit Card Customer)

Actually, there are still three courses of action:

  1. Fight with the credit-watch companies. Anyone who has actually had their credit score generated and bothered to look at the reports knows that they can be full of what seems like nonsense. When I bought property two years ago, for instance, TransUnion dinged me because the “proportion of revolving balances to credit limits is too high,” while Equifax dinged me for “a lack of recent revolving account information.” Well, which is it? Do I use my credit cards too much, or not enough? Certainly both companies can’t be right. The way to correct this kind of static is to write the companies and lay out your case (“Dear TransUnion: Please note that I have credit card number XXX and I don’t use more than 20% of my credit line”) but the process of disputing your report takes a while. If you’re doing something where you need your score to be bright and shiny — say, getting a mortgage — try to pull your scores in advance, maybe three months ahead of time, to allow for dispute reconciliation.
  2. Use your credit cards a little. The personal finance problem you may have, if you think of yourself as having “good” credit, is that you don’t use “enough” credit. If you’re a silver fox, for example, you may have already paid off your mortgage, so you no longer get points for paying your installment debt on time. It’s therefore important, in this situation, to make sure you keep using your revolving cards (by revolving cards, I mean cards when you can possibly run a balance — Visa, MasterCard, etc.). Dana Dratch of Bankrate.com notes that you want to make sure you have “small, sporadic usage” — in other words, charge something every couple of months. And, of course, pay it off.
  3. Don’t charge too much. One of the inputs to a FICO score is the proportion of your credit lines you use. If you have a $10,000 credit limit, and you charge a $3,000 sofa, you’re at 30% utilization. You may think that by paying your balance in full at the end of the month, you’ve achieved the “perfection” of 0% utilization. But be aware that the companies might not count it that way and could still call that paid-off sofa 30%. As a result, if you have a number of major purchases to make, spread ‘em around on different cards to keep your individual utilization rates lower. (In other words, put the sofa on the Visa and the coffee table on the MasterCard). Credit maven John Ulzheimer notes on Mint.com that you also want to pay attention to “aggregate utilization,” which is the percentage of all your available credit that you’re using at any one time. For consumers with scores above 760, Ulzheimer notes that aggregate utilization is just 7%. In other words, if you want to raise your credit score, the next time you go grocery shopping, bring cash.
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