Graham Stephan: How To Get a Perfect Credit Score
Written by
Katie Wudel
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Achieving a perfect credit score is a financial goal many aspire to, yet it often seems like a daunting task. Financial YouTuber Graham Stephan explains the process, breaking down the key components that influence your credit score and offering strategies to help you get reach the 850 mark.
From understanding how credit bureaus calculate scores to practical tips on managing your credit health, Stephan outlines the basics of credit management. Whether you’re starting to build your credit history or looking to perfect your score, this guide provides the insights you need to navigate the path to excellent credit.
Understanding Credit Scores
Stephan compares the credit scoring system to a class grading system, where various factors contribute to the final score. The biggest factor is your on-time payment history, accounting for 35% of your score.
Stephan underscores the importance of always paying bills on time, as late payments can negatively affect your report for seven years. He advises that even in tough financial times, making minimum payments can keep your account in good standing.
Managing Credit Utilization
The second largest factor, contributing 30% to your score, is the amount owed or the credit utilization rate. This measures the credit you have available versus the amount you use.
High utilization rates can lower your score, as you’re perceived as a riskier borrower. Stephan suggests maintaining a low utilization rate by having high credit limits, which allows for larger expenses without affecting your score significantly.
Average Age of Credit History
Accounting for 15% of your score is the average age of your credit history. Lenders favor longer histories, as it indicates reliability. Stephan advises building credit early and maintaining accounts for as long as possible.
Types of Credit and Hard Inquiries
Diversifying the types of credit you have impacts 10% of your score. Lenders prefer customers who can handle multiple loan types, such as credit cards, auto loans, and mortgages.
The final 10% of your score is influenced by hard inquiries, which occur when applying for new credit. While they can temporarily lower your score, Stephan advises not to worry too much about this aspect.
Strategies for Boosting Your Credit Score
Stephan recommends using free services like Credit Karma or CreditSesame to monitor your credit. If issues like insufficient credit, late payments, high balances, or collections appear, he suggests specific strategies to address each problem.
Authorized User Status and Reducing Balances
Becoming an authorized user on someone else’s credit card can quickly improve your score. However, it’s important that the primary user has a strong credit history. Reducing your balances to keep the utilization rate under 10% is another effective strategy. This might involve paying down balances or increasing credit limits.
Using Experian Boost and Removing Negative Information
Experian Boost is a tool that adds phone and utility payments to your credit file, enhancing your credit history. For negative marks, Stephan advises negotiating with lenders or disputing inaccuracies on your report.
Maintaining Old Accounts
A common mistake is closing old accounts, which can decrease the average age of your credit history. Instead, keep these accounts active, even with minimal use, to preserve your credit history’s length.
Avoiding Credit Repair Scams
Stephan warns against paying for credit repair services, noting that most effective strategies can be implemented for free. He emphasizes the importance of self-education in managing credit.
Beyond the Perfect Score
Achieving a perfect credit score can give you bragging rights, but Stephan points out that from a lender’s perspective, a score above 760 usually secures the best rates and terms. However, striving for a high score can open up financial opportunities and savings.
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.
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