Key Takeaways
- A perfect credit score is possible, though achieving it requires a laser focus.
- Even if you miss perfection, an excellent credit score will serve you well.
- Credit file matters can impact other areas like employment and insurance.
Is it possible to have a perfect credit score? For about 3 million Americans, the answer is yes.
According to FICO®, the company behind the FICO scoring model, just 1.4% of the 200 million U.S. consumers with a documented FICO credit score possess a max credit score of 850. If you hope to join that group, there are multiple steps you can take to achieve perfection or come close.
FICO scores range from 300 to 850, but there may be some variation in score classifications among different lenders making a credit decision about you. While perfection is something to strive for, keeping your score as high as possible will save you money in interest costs over your lifetime. Generally, a score in the very high 700s or above will get you the best credit terms. Good credit habits, a solid credit score, and an unblemished credit history can be integral to building wealth.
How to improve your credit score
Some factors related to credit scoring are beyond your control. For example, it’s difficult for a 20-year-old to have a long credit history. Other factors can be mitigated by making informed choices about how you manage your credit. If you are within striking range of 850 and would like the bragging rights of a perfect credit score number (although any score over 800 is considered exceptional by lenders) or just wish to improve your credit score overall, here are tips that can help:
- Always pay your bills on time. This factor alone accounts for 35% of your credit score. You will want a spotless record of on-time payments going back at least seven years for mortgage payments, credit card bills, student loan payments, and other debts.
- Avoid negative situations like bankruptcy, liens, credit card bill charge-offs, or having debts sent to collection. These events stay on your credit history for 10 years and will prevent you from attaining a perfect credit score during that time.
- Keep your credit utilization under control. This is the percentage of your available credit being used. Credit utilization comprises about 30% of your FICO score and 23% of your VantageScore® credit score. Credit utilization of 30% or less is considered optimal. Credit utilization is calculated both in aggregate across all available credit lines and on each available credit card and credit line.
- Be careful when closing credit card accounts, especially if your credit history is short. Ideally, you will have open accounts with a history of 10 years or longer. This means that closing longstanding accounts, even if you rarely use them, can potentially hurt your score.
- Have a good mix of different types of credit. For example, having at least one credit card account open (and active) as well as mortgage, student loans (if applicable), an auto loan, and others shows stability and responsible use of credit. This assumes your debt load isn’t excessive and you’re consistently current on all payments.
- Avoid applying for too much new credit. Multiple credit inquiries in a short period of time can hurt your score as well. Keep this in mind when you pass a credit card kiosk offering bonus miles to apply, or when a clerk suggests taking 10% off your purchase if you apply for store credit. These casual inquiries can work against you.
- Be diligent about your credit history on an ongoing basis. The benefits can save you tens of thousands of dollars over your lifetime via better interest rates and terms on mortgages, auto loans, credit cards, and other types of credit.
The three major credit bureaus
Three major ones dominate the market: Equifax, Experian, and TransUnion. These are publicly traded companies and not government organizations.
Your score from each credit bureau might vary based on who reports your credit information and when they report it. It’s up to you to ensure that your information is accurate and up to date.
Good/bad credit also affects other areas of your life
Maintaining a high credit score is important for reasons beyond obtaining new credit. The information used to calculate your credit score is used for other purposes, such as:
- Applying for a job. Information from your credit file is used as part of your pre-employment background check in many cases. Blemishes like tax liens, bankruptcies, collections, and similar events can look bad to a prospective employer.
- Obtaining insurance. Credit-based insurance scores can be used by insurance companies to determine your rates and even whether they will accept you as a customer. Some states limit this practice to property-based policies like auto and homeowners’ insurance, but other states allow insurance companies to use the information when deciding on your application for other types of insurance.
- Renting an apartment, applying for utility service, and obtaining cell phone service. Landlords, the electric company, and cell phone providers all want to know that you are likely and able to make your monthly payments. Poor or no credit history can result in higher rates, deposits being required, or even being turned down as a tenant or a customer.
What you can do next
Obtain a free credit report from each of the three major credit bureaus via Annual Credit Report.com. Do this every year and be sure to report any discrepancies to the appropriate credit bureau.
Roger Wohlner is a financial writer and advisor. His work has been featured in Investopedia, Yahoo! Finance, GOBankingRates, Morningstar, US News & World Report, and other publications. Roger writes extensively for various financial services firms, asset managers, and financial advisors.
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