When Sharon Epperson, CNBC Senior Personal Finance Correspondent, saw her VantageScore jump more than 50 points, from 753 to 805, in the span of a little more than a month, she was surprised because she hadn’t set out to achieve a near-perfect credit score. Epperson’s FICO credit score is even more impressive. During our interview, she told me her credit score was just one point shy of perfect, 849.
Epperson was doing what she had always done: she focused on paying down her existing debt on her credit cards and mortgage. Epperson attributes her success in improving her credit score to reducing balances on her credit card and mortgage, paying her bills on time, her credit history increasing and keeping her credit utilization ratio low.
Credit utilization ratio
FICO and VantageScore use slightly different criteria when determining your credit score but both consider factors like payment history, credit usage and credit history. Credit usage or the credit utilization ratio is the ratio of credit you’re using compared to the amount of credit that is available to you.
For example, if your credit card has a limit of $10,000 and your balance is $2,000, your credit utilization ratio is 20%. Experts recommend keeping your credit utilization ratio under 30%, or even below 10% if you’re interested in improving your credit score.
For Epperson, keeping her credit utilization ratio in the single digits was key to boosting her credit score.
’So my overall credit limit… or available credit, is six figures, and the level of credit I’m using is less than $1,000,” Epperson said. “I’m using less than 1% of my available credit which, I think, is significantly helping.”
Epperson also took advantage of the 0% introductory APR period offered on her credit cards, paying off her credit card balance in full before the 0% interest rate period ended. By paying off her credit card balance all at once before the 0% APR period ended, Epperson was able to quickly decrease her credit utilization ratio and boost her credit score.
“One of the things I had was a credit card that I’d gotten at the beginning of the pandemic, and it had 12 months, maybe 15 months, [of] 0% interest on it,” Epperson said. “So since I wasn’t paying interest on it I decided I would just pay a minimum amount every month, rather than paying it off in full because there was no interest accruing. And then when I realized that the interest rate was going to kick in. I paid it all off in one fell swoop.”
Credit history
She also notes that the length of her credit history had an influence on her credit score.
Both FICO and VantageScore use credit history to help determine your credit score — a longer credit history indicates to borrowers that you have a history of having credit extended to you. Furthermore, if you have negative information on your credit report like late credit card payments or a charge-off (failure to make a payment to a creditor), this information is typically erased from your credit report 7 years later.
For Epperson, her credit history became longer and the negative information on her credit report from earlier in her life was erased.
“I’ve had a long time to have a credit history, and… in the years that I may not have been as savvy with my credit there, those are falling off,” Epperson said.
With Epperson just one point away from having a perfect FICO Score, she is not sure if she’ll aim for an 850. However, she is considering using Experian Boost to get the extra point if she does.
Experian Boost is a free service that gives customers the ability to have their utility, phone and certain streaming service payments calculated into their credit score. Traditionally, these payments do not influence your credit score. Experian Boost also only considers your on-time payments or positive payment information so you don’t have to worry about late payments decreasing your score.
While achieving a near-perfect score is not a realistic goal for many people, Epperson recommends that people who are interested in increasing their credit score keep a close eye on their credit utilization ratio and the length of their 0% introductory APR period on their credit card to know exactly when higher interest rates kick in. If you’re interested in making small improvements in your credit score, it’s possible to do so by paying your bills off on time and in full and keeping your credit utilization ratio low.