Introduction To Understanding The Highest Credit Score Possible
Lets back up for a minute. Notice that we mentioned anything over 740 is generally considered to be great? Thats because credit scores are generally broken into the ranges poor, fair, good, very good, and excellent. The chart below outlines these various credit score ranges. As you can see, Excellent is generally defined as anything above 800 and 850, while a Good credit score is considered anything between 670 and 739.
FICO Credit Score Ranges
|580 & below|
Well dive into more detail on ways to achieve the highest credit score later in this article, but for now lets look at why its important to have an understanding of the highest credit score and how it can impact you.
How To Read Your Credit Report
Your credit report contains both personal information and financial information. Your credit report illustrates who you are as a borrower, both the good and the bad. Checking it allows you to keep an eye on your accounts, make sure there are no errors, and even potentially prevent the damaging effects of fraud. Your credit report is the report card of your financial life and understanding how to read it can help you take control of your finances and be prepared for any of your future credit needs.
Avoid Security Deposits On Utilities
These deposits are sometimes $100 to $200 and a huge inconvenience when youre relocating. You may not be planning to move soon, but a natural disaster or an unforeseen circumstance could change your plans. A good credit score means you wont have to pay a security deposit when you establish utility service in your name or transfer service to another location.
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Where Can I Get My Credit Score
You actually have more than one credit score. Credit scores are calculated based on the information in your credit reports. If the information about you in the credit reports of the three large consumer reporting companies is different, your credit score from each of the companies will be different. Lenders also use slightly different credit scores for different types of loans.
There are four main ways to get a credit score:
Check your credit card or other loan statement. Many major credit card companies and some auto loan companies have begun to provide credit scores for all their customers on a monthly basis. The score is usually listed on your monthly statement, or can be found by logging in to your account online.
Talk to a non-profit counselor. Non-profit and HUD-approved housing counselors can often provide you with a free credit report and score and help you review them.
Use a credit score service. Many services and websites advertise a free credit score. Some sites may be funded through advertising and not charge a fee. Other sites may require that you sign up for a credit monitoring service with a monthly subscription fee in order to get your free score. These services are often advertised as free trials, but if you dont cancel within the specified period , you could be on the hook for a monthly fee. Before you sign up to try one of these services, be sure you know what you are signing up for and how much it really costs.
How Does A Credit Scoring System Work
- Have you paid your bills on time? If your credit report shows that youve paid bills late, had an account put in collections, or declared bankruptcy, thats likely to affect your score negatively.
- Are you maxed out? Many scoring systems look at the amount of outstanding debt you have compared to your credit limits. If the amount you owe is close to your credit limit, its likely to hurt your score.
- How long have you had credit? Generally, scoring systems consider your credit track record. A short credit history may hurt your score, but paying bills on time and having low balances can offset that.
- Have you applied for new credit lately? Many scoring systems look at inquiries on your credit report to see whether youve applied for credit recently. If youve applied for too many new accounts recently, it could hurt your score. Not every inquiry is counted: for example, inquiries by creditors who are monitoring your account or making prescreened credit offers arent counted against you.
- How many credit accounts do you have, and what kinds of accounts are they? Although its generally considered a plus to have established credit accounts, too many credit card accounts may hurt your score. Also, many scoring systems consider the type of credit accounts you have. For example, under some scoring systems loans to consolidate your debt but not loans for buying a house or car may hurt your credit score.
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Key Characteristics Of Consumers With The Highest Credit Score
Although theres no defined formula for a perfect credit score, heres what the highest credit score consumers have in common:
- Long credit histories. Most people with perfect credit scores have a long credit history. According to a 2019 FICO report, their average oldest credit account was 30 years.
- Perfect payment history. A person who has perfect credit typically has a perfect payment history. This means they have no collections, late payments or other negative information listed on their credit reports.
- Low credit utilization ratio. The majority of people with scores of 850 dont use much of their available credit. According to the same FICO report, their average credit utilization ratio was 4.1%.
- A low number of recent credit inquiries. Although some open new credit accounts, the majority of them dont. When you apply for a new account, it typically requires a hard credit inquiry, which can damage your score between one and five points.
How To Improve Your Credit Score
So, its clear that a good credit score is one of the more important factors when trying to gain mortgage approval. Since its also a factor in calculating the interest rate youll be given, a favourable score can also save you thousands of dollars over the course of your amortization. Therefore, its best to get your credit score in the best shape you can manage before you apply with any lender. If your score is lower than 600-650, or you would simply like to improve it as much as possible, there are a few simple tricks you can use.
- Paying bills on time and in full
- Do not carry a large amount of unpaid debt
- Use no more than 30% of your available credit card limit
- Dont apply for too much new credit in a short amount of time
- Review a copy of your credit report for mistakes or signs of identity theft
- Consider a secured credit card if youre building from the ground up
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How To Earn A Very Good Credit Score:
As with borrowers in the excellent/exceptional credit score range, borrowers labeled as “very good” by their FICO Score will have a solid history of on-time payments across a variety of credit accounts. Keeping them from an exceptional score may be a higher than 30% debt-to-credit limit ratio, or simply a short history with credit.
Why Does A Low Credit Score Matter
As mentioned above, your credit score is a very important number. A low credit score can hurt you in a number of ways. Here are some factors to consider:
- Obtaining credit with reasonable rates. The lower your credit score, the more risky you appear to potential lenders. A creditor may choose to mitigate that risk by offering you higher interest rates or refusing to extend a line of credit to you at all.
- Employment. When applying for a new job, the employer might want to run a background check on you that could include a credit check, especially if the job entails financial responsibilities.
- Cellphones and utilities. Some cellphone providers might not accept you for service if you have a low credit score, and utility companies might require a deposit before providing you with gas or electric service.
- Housing. Renting an apartment with bad credit can be tough. Landlords want the rent paid on time, and a low credit score is a warning that you might struggle with that. If youre looking to buy, bad credit could make it difficult to obtain a mortgage, or require you to pay higher interest rates or make a bigger down payment.
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Are There Benefits To A Perfect Credit Score
Take a moment and ask yourself, Why do I want a perfect credit score?
If you consider yourself a perfectionist or hang out in some social circle where an 850 score has gravitas then, by all means, go for it.
There are two main benefits to having the highest credit score you can get:
- Qualifying for the best interest rates on loans
- Gaining access to credit cards with the best perks
The reality is that these benefits are exactly the same whether your score is 800 or 850.
Joining the 800+ credit score club puts you in the top 80th percentile and is sufficient evidence for all lenders that youll be a reliable customer.
Pay Down Revolving Account Balances
Even if you’re not behind on your bills, having a high balance on revolving credit accounts can lead to a high and hurt your scores. Revolving accounts include credit cards and lines of credit, and maintaining a low balance on them relative to their credit limits can help you improve your scores. Those with the highest credit scores tend to keep their credit utilization ratio in the low single digits.
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What Is A Good Credit Score
The nations three large credit rating agencies collect personal-finance data from numerous sources and weigh them using a formula to arrive at a number, called a FICO score, which comes on a scale of 300 to 850.
Any score above 750 tells the business world youre an excellent risk and you can borrow money at the most favorable interest rates.
Numbers between 650 and 750 are a gray area youll probably offered loans and credit, but probably not at the best rates.
Fall below 650 and you might find it difficult getting a loan or a credit line at an easily affordable rate.
The three credit-rating bureaus Experian, TransUnion and Equifax use their own methods for calculating scores, with results that arent identical, but are usually similar.
Key metrics are whether you are delinquent paying debts, the amount you owe, your payment history, the types of credit you have and the length of time in your credit history.
Rod Griffin, director of consumer education and advocacy with Experian, said the first step in improving your score is learning what the negatives are and taking steps to change them.
Resolving those negative issues will result in the most rapid improvement, Griffin said. Will that result in a 100-point change in a month? Thats unlikely but not impossible. If you have poor scores to start with, its a bit more plausible than for a person with high scores.
Become An Authorized User
If you dont have a lengthy credit history, ask a family member who has excellent credit to add you as on their oldest credit cards. Your score can increase if the credit card issuer reports information to the credit bureaus for authorized users. However, the downside is that your score can decrease if the primary cardholder misses a payment and its reported on your credit report.
Better Chance For Credit Card And Loan Approval
Borrowers with a poor credit history typically avoid applying for a new credit card or loan because they’ve been turned down previously. Having an excellent credit score doesnt guarantee approval, because lenders still consider other factors such as your income and debt. However, a good credit score increases your chances of being approved for new credit. In other words, you can apply for a loan or credit card with confidence.
Monitor Your Credit Report
Your credit report gives you insight into your current state of creditworthiness. Use the information in this article to regularly check in on your credit report.
Since the three credit bureaus allow you to obtain a free credit report once a year, stagger out your request every four months. This strategy will enable you to keep tabs on any new collections or mistakes on your statement.
There are private companies that also allow you to receive a free report on your FICO score as well. Try using creditsesame.com, creditkarma.com, wallethub.com, to get an update on your latest score. Make use of government and financial agencies such as annualcreditreport.com, and myfico.com as well.
If you notice any errors on your report, contact the bureaus immediately, and start the dispute process to clear your credit report. Using this strategy, you minimize any damage to your financial health while giving yourself a roadmap to follow to maintain your credit score.
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What Is A Perfect Credit Score
What does it mean to have perfect credit? If your credit score is 850, you have the highest credit score possible in both the FICO and the VantageScore credit scoring systems.
However, the FICO credit scoring system considers all credit scores over 800 to be exceptional. While trying to get a perfect credit score might be a fun game, you can get all of the advantages associated with perfect credit simply by getting your credit score over 800. Once your credit score passes 800, theres little you can do to actually make your credit score even higher, besides keeping your credit utilization low and waiting for the length of your credit history to improve.
Review Your Credit Reports
Credit report errors happen. If a creditor reports negative information thats inaccurate or incomplete to the credit bureaus, it can damage your credit score. To catch and fix reporting errors, review your credit reports at least once a year.
You can view all three of your credit reports for free by visiting AnnualCreditReport.com. Normally, you can only view them for free once per year. However, due to the Covid-19 pandemic, you can receive free weekly reports until April 20, 2022.
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How Does Refinancing Impact My Fico Score
Refinancing and loan modifications may affect your FICO® Scores in a few areas. How much these affect the score depends on whether its reported to the consumer reporting agencies as the same loan with changes or as an entirely new loan. There are many reasons why a score may change. FICO® Scores are calculated using many different pieces of credit data in your credit report. This data is grouped into five categories: payment history , amounts owed , length of credit history , new credit and credit mix . If a refinanced loan or modified loan is reported as the same loan with changes, two pieces of information associated with the loan modification may affect your score: the new credit inquiry and changes to the amounts owed. If a refinanced loan or modified loan is reported as a new loan, your score could still be affected by the new credit inquiry and an increase in amounts owed, along with the additional impact of a new open date which may affect the credit history category. In the end, a new or recent open date typically indicates that it is a new credit obligation and, as a result, may impact the score more than if the terms of the existing loan are simply changed.
Why Does It Take Time To Build Excellent Credit
When you are just starting to build a credit score, time doesnt work in your favor. Lenders want to see good behavior over time, which is much of what FICO scores take into account:
Proof that you make payments on time and dont carry large balances on credit cards makes you a less risky, more trustworthy credit user in the eyes of lenders. Those responsible behaviors carry more weight when demonstrated over time, too, which is why building a good credit score from scratch doesnt happen overnight.
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Have Different Types Of Credit Accounts
There are two major types of credit accounts. Theres revolving credit, which includes ongoing loans like credit cards, where you can spend and pay each month. The other is installment loans, which include personal loans, car loans, mortgages, and other situations where you borrow a large sum of money up front then pay it back over time in installments. To get the highest possible credit scores, you need both of these on your credit reports.
Keep in mind that you dont need to go out and buy a new car just to boost your creditworthiness with an installment loan. If youre looking to build credit and dont have any installment loan accounts, you can use a to add positive payment history to your credit reports and increase your credit mix.
If youve had an installment loan in the past and paid it off satisfactorily, it will count toward a healthy credit mix while it remains on your credit reports. The idea is to demonstrate you can manage multiple types of credit accounts over time.