Credit Sesame survey reveals the habits of people with great credit.
Individuals with exceptional credit scores enjoy some important advantages. Typically, approval for credit is easier, they get lower interest rates from a wider selection of lenders and better rewards.
A recent Credit Sesame survey identified five habits of people with top credit scores that set them apart from how most consumers use credit. For the purpose of analysis, survey respondents were grouped by credit score:
- 800 or higher. People with super exceptional credit scores.
- 799 or lower. People with credit scores from poor to excellent.
How respondents answered five key questions reveals much about what it takes to earn an outstanding credit score. Generally, a VantageScore above 750 is considered excellent. For the Credit Sesame analysis, we assessed the habits of the very highest scorers 800 or above.
1. How do you usually pay for daily living expenses?
Frequent credit use helps build credit scores.
52% of the group with outstanding scores said they used a credit card. In contrast, just 17% of all other respondents said a credit card was their primary payment method. Among people with credit scores below 800, 74% said a debit card was their preferred means of payment.
Other methods of payment such as cash, prepaid cards and secured credit cards were used by both groups under 10% of the time.
Using a debit card draws on the money you already have in an account, so you are unlikely to go into debt. However, you need to use credit regularly to develop an excellent credit score. Payment history is the number one factor in determining a credit score.
The key to getting the most out of a credit card is to use it frequently without running up a debt balance over time. If you pay your balance off monthly, you can use a credit card without paying interest. This can be better than using a debit card because the money stays in your bank account a little longer, hopefully earning interest. Plus, it builds a robust history of using credit and making payments.
2. How much of the total balance on all your credit cards do you pay off each month?
People with great credit pay their balances off every month.
The survey found that 77% of respondents with credit scores of 800 or better pay their balances off in full every month. In contrast, 24% of the remaining respondents paid their balances off in full.
Strikingly, none of the respondents with outstanding credit said they paid only the minimum payment. 9% of those with scores below 800 said they usually made only the minimum payment.
Making only minimum payments extends your repayment out over a longer period. This means you pay more interest. You may also accumulate larger credit balances, hurting your credit score.
8% of respondents with great credit scores paid off under 25% of their credit balance monthly compared to 51% of respondents with credit scores below 800. As a result, people with lower credit scores end up paying more interest. They are also likely to be using more of their credit limit from month to month.
3. What proportion of your total credit card(s) limit do you use monthly?
Keeping a low credit card balance helps your credit score
Credit utilization ratio is a factor in determining credit scores. It is the amount of credit you use compared to your credit limit. For example, if you have a $1,000 credit limit and a $500 balance, you have a credit utilization ratio of 50%.
A low credit utilization ratio is good for your credit score. 80% of people with credit scores of 800 or better have card balances under 10% of their credit limits. In contrast, just 46% of the remaining respondents keep their balances so low.
People with high credit pay less interest and have low credit utilization ratios, which help their credit scores.
4. What are the main things you save for?
Preparing for emergencies helps keep credit in shape
Often, it is unexpected expenses that get people into credit trouble. A loss of income or sudden expense causes people to rely more on credit to make ends meet. Their credit usage rises and they may have trouble making payments. This drives their credit score down.
One thing distinguishing people with better than average credit is they try to prepare for emergencies. 74% of survey respondents with scores of 800 or higher had emergency savings on hand compared to 54% of the lower-scoring respondents.
5. What made you decide to apply for your last card?
Great credit users do their research.
Credit card ads are one of the most common types of advertising popping up on computer screens, televisions and into mailboxes. The question is, do they convince you to apply for a credit card?
Survey respondents with credit scores below 800 typically said they responded to advertising. 56% said they responded to a pre-approved or pre-qualified offer they received. A further 12% said they saw an ad and acted on impulse. In total, 68% of people with credit scores below 80% chose their credit cards in response to some marketing promotion.
In contrast, 60% of respondents with credit scores of 800 or better researched to find the right card compared to 32% of respondents with scores under 800. This suggests people with excellent credit are almost twice as likely to consider cards carefully before applying.
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The Credit Sesame Credit Health and Financial Fitness Survey December 2022 was designed and executed by Credit Sesame using the WebEngage survey tool. The survey sample comprised over 1,500 Credit Sesame members with a credit score distribution resembling the U.S. general population. In aggregate the sample data is accurate with a 2.5% margin of error using a 95% confidence level.
Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.