60-Second Guide to Perfect Credit

About 1% of the population has perfect credit, meaning a FICO score of 850 on Fair Isaac Corp.’s scale of 300 to 850. How they earned those gold stars is no secret. A quick peek into their credit files reveals that these star pupils haven’t got any fancy tricks up their sleeves. Instead, they share such ho-hum traits as:

• Between four and six revolving accounts (meaning credit cards).
• At least one “installment” tradeline (e.g., a mortgage or auto loan) in good standing.
• A few accounts around 20 years old with a long history of positive use. (To get into the 800 range, you need 10 years of positive account history.)
• Around 30 years of credit use.
• No late payments (or other account blunders) for at least the past seven years.
• Very few credit inquiries (no more than one to three in a six-month period).
• No derogatory notations — collections, bankruptcies, or bad accessorizing. (Just kidding on that last one.)
• Debt levels on credit accounts of less than 35% of their overall credit limit.

Enough gawking, let’s cheat off their homework! Here’s a one-minute crash course on keeping your credit healthy for life:

0:60: See what everyone’s saying about you
Three major credit-reporting agencies are keeping tabs on your financial comings and goings, and so should you. At least once a year (and certainly several months before entering any major loan situation), go to annualcreditreport.com and pull your rap sheets from Equifax, Experian and TransUnion. (You get one freebie from each bureau once a year.)

0:52: Fix the typos
Given that your credit record spans nearly a decade of your borrowing activity, it’s no surprise that errors sometimes turn up. Some common credit-reporting blunders include out-of-date addresses, closed accounts being shown as open, and outright false information.

0:40: Mend your uncreditworthy ways, ASAP
Those self-inflicted credit wounds (like a history of late payments, defaults, and generally bad behavior — think back to your freshman year in college) will fade from your record over time. (You cannot wipe out accurate information from your credit report. Nor can any firms who offer to do so for a fee.) Since your most recent behavior carries more weight than old news, vow that from this day forward you will be a financial Goody Two-shoes.

0:25: Memorize the mantra: It’s plastic, not cash
A credit card is just that — a credit card. Even though you’ve been deemed worthy by some entity (Target, Visa, The Puppy Palace) to borrow $34,538, you don’t actually have $34,538 to spend, which leads naturally to the next rule …

0:19: Ignore bankers’ rules on what is an “acceptable” level of debt
Your debt-to-income ratio is the measure of how much debt you carry to how much money (after taxes) you have coming in. In the world of lending, it is acceptable to carry 25% of your income in debt. That ratio is pretty high in our opinion. At the very least you want to keep your debt — including car loans — to 15% or less of your after-tax income.

0:07: Lather, rinse and repeat
Based on what’s in the Bo-Derek-of-borrowers’ files, you can see that fancy maneuvers aren’t necessary to keep your credit looking spiffy. Just keep your spending under control, pay your bills on time, don’t apply for extra credit too often — and don’t be shocked when you find yourself among those with elite credit-score status.

Got a couple more seconds?

• Our credit and debt collection offers a closer look at tips to keep you out of debt and get your credit up to snuff.
• Commiserate on the Credit Cards and Consumer Debt discussion board with seasoned Fools who have been there and done that.