How to get perfect credit

FORMULA FOR PERFECT CREDIT

The path to gaining a perfect credit score has been made clear. The formula to achieve it is listed below.



40% payment history – on time payments is the largest variable that’ll help you boost your credit score. Trick here is to automate every payment you have and obviously insure you have the funds to cover costs.

21% credit history – This one is referring to how you manage your debts. Do you pay them off? It also tracks the types of debts you have. For example I recently refinanced my house only under my wife’s name and my credit score dropped 20 points. I’ve slowly built it back up but the types of debt you currently have affects your score. Having a mortgage boosts your credit because it shows you can make mortgage payments.

20% credit usage – Having 6 maxed out credit cards will look bad. If you are making minimum payments every month this will also negatively affect your score. This variable tracks your ability to take out debt and pay it off.

11% total balance - I’ve got my credit score to 812 by keeping my total available credit usage under 6%. So if I have a credit card with a $10,000 credit limit I generally only put $600 of debt on it a month. Trick with this one is to have a high available credit limit. You can call your credit card people and ask for higher limit even if you never intend on using it. This will help boost your credit over time.

5% credit check – this one is clear, every time you get your credit ran it negatively affects your score. But the percentage it affects you is minimal but be aware that if you’re applying for credit cards, and cars and mortgage it’ll negatively affect your score generally for a year after the check.

3% available credit – I previously mentioned this one, but having a lot of available credit helps your score. It basically shows you are trustworthiness to manage more debt. I’ve only done this a handful of times and I tried to do it with all my open credit lines in the same year.

Bonus tip: having a credit card isn’t necessary to build credit. There are other tools you can use. My favorite is having a line of credit at my credit union. I have a $10,000 line of credit with them and it’s been open for 8 years. It started out at $500 and last time I bought a car using my credit union I asked them to increase the limit on that since they had just ran my credit. Two birds, one stone. This is a long term play.

Bonus tip #2: if you’re married chances are one of you has a higher credit score. Let’s say the wife has better score and the husband needs improvement. If the husband becomes an authorized user on the wife’s credit card, husband will get a boost in credit score. This’ll give you a nice short term increase in score without much work.

If you found that useful, check out my article on how Inflation Erodes The Dollar Compounding.

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