Other Benefits Of Improving Your Credit Score
The main benefit is in getting a loan at all, of course. But thats not all you get by avoiding bad credit. Here are some other benefits of a higher score.
Lower interest rate: Interest is the amount of money you pay on your loan. And for a mortgage in particular, your interest rate can have a significant implication on your financial future. Thats because the amount of interest you pay over the life of a loan adds up fast. The lower the rate, the less youll pay overall.
Bargaining power: Want the best credit cards with longer payment cycles or more perks? The better your credit score the more apt they are to upgrade you to a more attractive product, such as one that can earn you cash back, airline miles, or other benefits. In addition, you are more likely to get favorable treatment should something go awry. For example, if youre temporarily unemployed and need to skip a payment on your credit card balances, or you sent your payment in late by mistake, the card issuers might be more apt to forgive you if youve shown yourself to be a responsible customer. Major credit card issuers also might be more inclined to raise your limit if you have a big-ticket purchase coming up, or want a little more wiggle room on your monthly bills.
Is It Possible To Get A Credit Score Of 850
Yes! You can attain a perfect credit score of 850. Some Americans have achieved it. In fact, 1.2% of all FICO Scores in the U.S. sit precisely at 850.
How do you know if you’re close to 850 or way off? You can check your credit scores using a few different methods.
One thing to note: If you check your credit reports for free through Experian, TransUnion or Equifax, that doesn’t mean you get access to your . You get your credit reports a list of all the actions you’ve taken with creditors.
So how do you know your ? You can take various steps:
Check with your financial institution.
Look at your credit card statement.
Take a look at your loan information your lender may provide it.
Use a credit score service or free credit scoring site.
Purchase a credit score summary directly from one of the three major credit bureaus or another provider like FICO.
Don’t be alarmed if the credit scores provided by the three nationwide credit bureaus look different. Some creditors may report information to one credit bureau, two, or all three. Therefore, all three credit bureaus might show you a slight variation on your credit score!
How Your Fico Score Is Calculated
Your payment history is the No. 1 factor in a FICO score, and it accounts for 35% of your score. The next-biggest factor is your credit utilization rate how much of your available credit youre using which counts for 30% of your score.
A tip: To avoid lowering your score, its recommended you use not more than 30% of your total available credit.
How long youve had credit counts for 15% of your FICO score. Your credit mix the variety of loan types you have counts for up to 10%. Recent applications for credit can influence your FICO score up to 10% because when you apply for credit the lender will make a hard inquiry , which typically lowers your score by a few points.
Although FICO doesnt assign percentage weights to certain information on your credit report, keep in mind that derogatory information such as foreclosures, accounts in collections and bankruptcies can cause your score to take a nosedive.
To quickly grasp how much weight FICO assigns to each category, see below:
- Payment history: 35%
- New credit: 10%
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How Can I Get The Highest Credit Scores Possible
Theres no magic formula for achieving the highest score. A perfect credit score based on one scoring model and one credit report may not translate into a perfect score with another because of the different weighting formulas and algorithms.
That said, there are definitely steps you can take to get the best credit scores possible.
Benefits Of High Credit Scores
High credit scores usually come with multiple benefits, including:
- Lower interest rates. When you apply for a personal loan, mortgage, auto loan or student loan, youll have a better chance of qualifying for the best interest rate. This can save you thousands of dollars during your lifetime.
- More lending options. If you have a high score, you shouldnt have much trouble meeting any lenders minimum credit score requirements. This gives you access to lenders who only offer loan products to applicants who have excellent credit profiles.
- . Since some of the best cash back credit cards require excellent credit scores , youll most likely qualify. In addition, youll also be able to qualify for a 0% APR credit card that doesnt charge interest on purchases or balance transfers for up to 21 months.
- Lower car insurance premiums. If you live in a state that allows , you could pay a lower monthly premium.
- Lower security deposit for an apartment. When you purchase an apartment, youll probably pay less of a security deposit than someone who has a low credit score.
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High Credit Scores Can Indicate Great Financial Health
A high credit score can gain you access to the best lenders and the best rates available.
It can also make or break your qualification for just about any line of credit, including a credit card, car loan or mortgage. If you want to borrow money, you need to prove you can handle credit and pay it back on time. Think of every time you pay your debts as a touchdown and youll be in the right frame of mind to set up an effective financial game plan.
Lenders use dozens of credit scores to measure consumers creditworthiness, so make sure you know yours. You should, because it has a significant impact on your financial standing. If your score is low, remember that its never too late to start rebuilding your credit.
You Have High Balances On Your Credit Cards
It’s going to be tougher to reach excellent credit this year if your FICO® Score is below 740. But you could get there, especially if you’re carrying around large credit card balances.
Your credit card balances in relation to your credit limits are extremely important. This is known as your , and it accounts for 30% of your FICO® Score. If your credit card balances total $7,500, and their combined credit limits are $10,000, that would put your credit utilization at 75%.
The conventional wisdom on credit utilization is that you should keep it below 30%. However, lower is always better, and consumers with the highest credit scores average below 10% credit utilization.
If you can pay down high balances, you’ll see a near-immediate improvement in your credit score. Credit card companies report cardholder balances monthly. As soon as your card issuers report your lower balances, it will raise your credit.
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Do You Need To Have The Highest Credit Score
Would it be nice to have an 850 credit score? Of course not only would you have bragging rights, but youd also likely gain access to the best rates available from lenders.
But do you need to have the highest credit score? No way. Instead, you want to shoot for the highest band possible. For example, if you have an 800 FICO score, youll still be in the exceptional category. If your VantageScore is 750 youll be in the excellent band.
Even among the most disciplined consumers, few achieve the highest credit score possible. In fact, less than 1.5% of Americans are able to attain an 850 credit score, according to FICO. Even then, credit scores change all the time, so its not likely that any one person is maintaining an 850 FICO credit score at all times.
Striving to get the best credit score you can is a worthy pursuit. You might be surprised at how many ways your credit score can influence your life. It goes beyond just getting good terms on a loan.
A low score can actually cost you money. For instance, companies you deal with on an everyday basis utility companies, insurers, cellphone providers might check your credit score and levy certain fees or charge you higher rates if you dont look like a good borrower.
A low score can also affect where you live. Say you found a fantastic apartment and the landlord did a credit check and saw that you dont pay your bills. Your low credit score will decrease the likelihood of a landlord renting to you.
Achieving A Great Credit Score Takes Time
You won’t achieve above an 800 credit score overnight, so you’ll need a lot of patience as you work toward that goal. But as you develop good credit habits, you’ll be rewarded as your credit scores respond positively.
As your credit scores climb, you’ll see savings along the way as lenders view you as a more reliable borrower.
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Could You Achieve An Excellent Credit Score In 2021
Whether you could reach excellent credit in 2021 depends on your current score and your credit history. If you already have a 780 FICO® Score, excellent credit isn’t far away. But increasing your credit score from 600 to 800 would be extremely difficult, considering there are less than five months left in the year.
Here are the most common scenarios where you could achieve excellent credit this year.
Ways To Improve Your Credit Score
If youre looking to improve your score, there are some basics that you can work on. Those are:
If you put some of these strategies into play, its not difficult to move from one credit ranking to another.
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Why Is Having A High Credit Score Important
While its not necessary to have an 850 score, its important to maintain a high credit score. This will make it easier for you to buy a home, purchase a car and even get a job.
Your credit score shows your history of repaying your debts and making your monthly payments on time. If you have an excellent or even perfect credit score, the lender assumes youre not a risky investment because they assume that you will treat new credit as you have credit in the past and pay it back responsibly.
But, if your credit history shows that you dont pay your bills on time, some lenders may be hesitant to extend you a line of credit. They may be more concerned that this pattern will repeat itself, and they will be out that money.
Many workplaces are increasingly looking to hire employees with high credit scores. Thats because a good credit score demonstrates a history of financial responsibility.
How Long Does It Take To Raise Your Credit Score
If youre starting from a bad score, it usually takes about six months to one year to build credit to a fair score. The length of time depends on your past credit profile. Negative items like bankruptcy or foreclosures are harder to offset with positive actions. Still, even with one of these remarkably bad items, you can still build credit effectively within 24 months.
Going from bad to excellent may take as little as three to five years. So, even if you have a score thats less than 500 now, with a little work you could achieve a 700 credit score or higher in about 36-60 months. And its worth the effort! A better credit score can save hundreds and even thousands of dollars when paying off loans and credit card balances.
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Getting A Perfect Fico Score
If you’ve been working to attain a perfect FICO® Score, here are a few takeaways to consider as you work toward your goal. Remember that having multiple credit cards or lines of credit is not a bad thingunless you mismanage your debt. Open new accounts when needed, and make sure to manage your debt and payments responsibly. In addition to making your payments on time and keeping your debt levels low, avoid any delinquent tradelines.
If you’re trying to build your credit score, periodically check your credit reports and scores so you can keep track of what is in your file and how it is affecting your score. You can get a free copy if your credit report and score from Experian and you can use the Experian to regularly track your score in the future.
The Main Factors That Affect Your Scores: Fico Vs Vantagescore
While VantageScore and FICO scoring models have differences, both make it clear that some factors are more influential than others.
For both models, payment history is the most important factor, followed by the total amount of credit you owe .
FICO uses percentages to indicate the importance of each factor to your credit scores.
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Do Perfect Credit Scores Really Matter
Ultimately, perfection doesnt matter nearly as much as having credit reports that reflect several years of managing credit wisely. If you have a FICO Score 8 above 740, chances are good that youll qualify for the best credit card offers, lowest interest rates and best rewards programs offered by most credit card companies.
Theres very little difference to lenders between, say, an 800 FICO Score 8 and the perfect 850. People with excellent credit scores are likely to get the best possible terms on any loan or credit card account, provided theres enough credit history and income to back it up.
Is there any advantage to perfect credit scores? Those extra points can offer a bit of protection if you happen to miss a payment or ding your score with high credit utilization or multiple credit inquiries. But its easier to avoid those unnecessary penalties in the first place and focus on managing your credit responsibly.
Have we answered all your questions about achieving the highest credit scores? Was anything confusing? You can always hit the orange Ask button at the top right of this page with any questions or feedback were here to help!
Why Your Credit Score Is Important
Your is important because lenders use this three-digit number to determine how risky of a borrower you may be. The higher your credit score is, the greater your chances are of qualifying for a loan and securing the best interest rate. Typically, the best rates and loan terms are reserved for people who have good credit .
During your lifetime, a good credit score can help you save a ton of money in interest. It can also help you avoid some fees. For example, if you took out a personal loan, a high credit score could help you avoid personal loan origination feesfees charged to process the loan.
However, If you have a bad credit score or minimal credit history, you might not meet a lenders minimum credit scoring requirements. This can prevent you from getting access to the cash you need. You most likely would need to apply for a loan with a co-signer or co-borrower to qualify, or you can explore bad credit personal loans.
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.
How To Get A Credit Score Of 800
When you want to shoot for those upper tier credit scores, keep a few things in mind. Take a look at a few guidelines you want to pursue relentlessly in order to achieve admission to the 800 Club:
Keep your utilization rates at or below 30%. What does this mean? This means that even if your credit card offers you a $10,000 credit line per month, repeatedly using more than 30% of that line will affect your score.
Length of credit history matters. A longer credit history will result in a higher score than a shorter credit history.
Applying for new credit means your score can drop temporarily, but often “comes back” within a few months.
Debt mix makes a difference. Multiple types of credit, including revolving credit , installment loans look better on your credit score than just one type of credit.
Keep tabs on your credit reports and scores so you know what’s going on. Keep on top of your credit reports because it’s very possible that the credit bureaus could have made a mistake.
Get rid of debt with a caveat. Getting rid of revolving debt helps your score by bringing down your credit utilization rate. However, know that closing certain lines of credit can actually bring down credit score temporarily.
Make all of your payments on time.
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