On most scales, the highest credit score possible is 850. As you might imagine, reaching this is incredibly uncommon. Just 1.5% of people have attained perfection credit-wise.
Your credit score is a number that represents the amount of risk you pose to a potential lender. Having a high credit score is important for receiving the best rates on home and auto loans, which can add up to tens of thousands of dollars in savings over your lifetime. While it can be difficult to learn how to manage your payments efficiently and save frequently, it’s absolutely imperative to keep up with your score and credit history.
Does It Make a Difference to Have the Highest Credit Score?
Ultimately, there isn’t much difference between an excellent credit score and a perfect credit score. Achieving a credit score above 750 is much more likely, and will often warrant the best loan rates available. Because perfect credit scores are so rare, there aren’t many rewards for having one, other than bragging rights.
Even if you were to reach the elusive 850, your score may fluctuate down frequently. This is because your credit score is always being recalculated. It may change as you make payments on a loan or open new lines of credit. Your credit score may also change because the credit reporting agency changes the way they evaluate certain kinds of debt as the credit landscape changes. Since student loans are more prevalent now, they don’t reveal as much about a borrower to reporting agencies as they used to. Reporting agencies are constantly reworking their algorithms.
While you should maintain good credit whenever possible, the nature of the score means that it isn’t realistic or necessary to achieve the highest credit score. Whether your credit is nearly pristine, or you’re a long way off from a good score, you may be wondering what it takes for those who do acquire a perfect credit score. The answer is a long, flawless history of payments, low utilization, and a variety of accounts.
What it Takes to Achieve The Highest Credit Scores
According to FICO, there are five main factors that affect your credit score differently. Not everyone with perfect credit will tick all the requirements for perfection all of the time. However, these are good guideposts if you are seeking a perfect score.
Payment History – 35%
According to FICO, the largest factor in determining your credit score is payment history. 35% of your credit score is decided by how many on-time payments you have made. For those with an 850, this usually means absolutely no late or missed payments within the last seven years. After this time, negative reports, aside from bankruptcies and delinquent student loans, drop off your report.
Utilization Rate – 30%
A utilization rate is the ratio of amounts owed to credit available. Keeping your amounts owed means that you are usually more capable of paying off the debt that you do incur. Therefore the amount owed accounts for 30% of your FICO credit score. To achieve the highest credit score, some recommend maintaining a utilization of under 10%.
Length of History – 15%
The longer the credit history, the better. Longer credit histories indicate to lenders that you are more experienced with managing credit. 15% of your credit score is determined by how old your oldest line of credit is. While payment and debt information only stay on your credit history for 7 years, the overall length of credit is always going up. Anywhere from 10 to 25 years of credit is typical of the highest scorers.
Types of Accounts – 10%
Your credit mix accounts for 10% of your score. There are multiple kinds of credit. Credit cards are what’s known as revolving credit, as the balance is carried over each month. Student loans, mortgages and mortgages are the most common types of long-term installment loans. Those who are able to manage their month to month credit as well as long-term credit tend to use credit more wisely, and are therefore less of a risk. Those with a perfect credit score tend to show a mastery of all kinds of credit.
New Credit – 10%
How many recent accounts a person has opened affects 10% of their credit score. It is better not to have too many new accounts on your credit history, as this can indicate a greater risk. Having a perfect credit score means that you haven’t had any hard inquiries, which happens when you apply for a new credit card. Having many recent applications for credit can indicate a less healthy management of credit.
Tips for Reaching Your Highest Possible Credit Score
Even if a pristine credit score isn’t realistic for you, it’s still important to strive for the best credit score you can. Here are some tips to help you:
- Set Up Automatic Payments: Get one step closer to a flawless payment history by making sure you never miss a payment on your credit card or loan. Automatic payments will keep your accounts from accidentally going into the red.
- Keep Utilization Low: While it may be hard to keep your utilization below 10%, aim for at least below 30%. If you use more than this, it’s possible your credit will be negatively impacted. Whenever possible, make more than the minimum payment on your credit card every month.
- Don’t Close Your Oldest Accounts: To maintain a longer average credit history, don’t close your oldest credit cards unless you have to.
- Open New Credit Wisely: While it’s true that having several kinds of credit can help boost your score, you should never open a new account just to boost your credit. Take out a loan or apply for a credit card when it make sense for you. This ensures that you don’t open too many accounts at once, and risk taking a ding in your credit.
- Stay on Top of Your Credit Score: Don’t avoid checking your credit score, even if you’re nervous about what it may say. Checking in on where you stand regularly can help you build credit and learn from past actions.
A perfect credit score may not be possible, but that doesn’t mean you shouldn’t strive for the highest credit score you can. With diligence and education about how to manage your finances, you’re sure to see your credit score increase over time.