Why it’s SO HARD to get a Credit Score Above 800 – The Credit Shifu

Hey credit warriors, in this video we are going to talk about why it is so hard to get your credit score above 800 and what you can do to get there. If you like the sound of that please subscribe, it really helps me grow the channel.

So if you don’t know, credit scores range from 300 to 850 and according to the credit bureau Experian, only 20% of Americans have a credit score over 800. And increasing your credit score from 700 to 800 is way harder than going from 600 to 700.

In a minute I’m going to show you a letter from a recent credit check on my credit and give you all the reasons why I am not at 800, but first a little theory. So when you go from 600 to 700 it is mainly these two factors, payment history and amounts owed (also called credit utilization) that are affecting your score in a positive way.

But as you get above 700 each new on time payment that is added to your credit report each month doesn’t have as much effect as before in increasing your score, since you already have so many, credit utilization plays basically the same role as before, but other the other three credit factors start really coming into play.

So length of credit history makes up 15% of your score and what can you do to increase that? Well just wait. But there is a little more to it than that. Here are all the things FICO looks at for credit history:

How long your credit accounts have been established, including the age of your oldest account, the age of your newest account and an average age of all your accounts
How long specific credit accounts have been established
How long it has been since you used certain accounts

So while just waiting will increase the length of each account. We can see in there a little thing called average age of all your accounts, this means if you open a new account it will shorten that average age, so for someone who is playing the credit card game and often getting new cards, this part really becomes a problem.

Then the next factor of credit becomes credit mix which accounts for 10% of your score. This means do you have a mix of credit accounts such as credit cards, mortgages, car loans etc… This helps increase your score especially having a mortgage, because think about how much vetting you have to go through when you apply for a mortgage? Apart from being audited by the IRS, a mortgage application is probably the most rigorous financial vetting the average person will go through in their life. If you don’t have these, don’t worry, you can’t apply for a mortgage just to improve your credit score, you have to actually want to buy a house! But that is one reason why it is so hard for this part of the algorithm to have an affect, because it can only affect people who actually have other types of credit, many people, especially people in their early to mid 20s, just have credit cards and nothing else.

Then the last of these three factors is new credit, it affects 10% of your score and this is basically referring to hard credit inquiries and the new accounts that may come from those inquiries. Hard inquiries will drop your score by a 3 or 4 points each. drop off your account after two years, but FICO only considers the ones in the last 12 months when working out your score. The system also allows for rate shopping, like several hard pulls for a mortgage in a short period of time will only count the same as one inquiry.

So I think this is another area where you will see that for someone playing the credit card game, often opening new cards to get sign up bonuses etc.. It is hard to maintain a good score. It is a lot easier to get to 800 if you just open say 4 or 5 credit cards and then just use them, keeping your utilization low and not hitting your account with new inquiries or shortening your average age of accounts with new cards. Mrs credit shifu kind of does just that. She has maybe 5 cards and only applies for one new card a year. Right now her credit score is very close to 800 on credit karma and at 778 on FICO. She currently only has one credit inquiry on her account. I by contrast have 7, so many, that credit karma gives me a red circle.

Anyway I flashed that letter at you at the start so I know you are eager to hear how bad my credit score is and all the factors that have pushed me down. So here goes. Let’s start with Credit Karma, the most generous algorithm, where my scores are: 747 from transunion and equifax. But now let’s actually take a look at this letter from a construction loan application, its kind of like a mortgage, so its a stricter algorithm. 742 with Experian, 737 with TransUnion and 710 with equifax. So the average of those three is 729.
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