What Is a Perfect Credit Score? A Comprehensive Guide

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A perfect credit score of 850 is a bit of an elusive target, always challenging you to figure out the formula for impeccable financial health. But is the maximum number really necessary? And if so, how frequently do people achieve it? Even though lenders generally assure that anything over 700 is a good score, many people strive for the ultimate goal: 850.

After all, credit this impressive has countless benefits — it’s a sure sign that you both understand your relationship to money and have a clear plan for borrowing and spending with confidence. Benefits of a perfect credit score may include lower interest rates, easier approval for home loans or rental applications, and even a greater chance of getting hired by your dream company. Is it essential to have a perfect credit score for these opportunities? Not necessarily. Anything from 720-780 is considered “good,” while above 750 is an excellent score.

Reaching that brag-worthy 850 takes more than just financial wellness, but also a complete understanding of how credit works and the math behind what affects your score from day to day.

How to Get a Perfect Credit Score

The path to reaching that rarely seen 850 score can seem a bit confusing. Even if you pay your bills on time, have a diverse collection of credit accounts, and maintain a clean financial record, many people plateau around the 750-800 mark. So how does one build enough credit to reach the ultimate score? Let’s go through some of the most common contributors to getting that perfect credit score:

Make Timely Payments

There’s no question that making your credit payments on time each and every month is one of the most important factors for your credit score. This doesn’t necessarily mean that you can’t carry a balance on revolving credit accounts, but late minimum payments both incur a fee and remain on your credit report. In the end, it all comes down to long-term trust from lenders, which is one of the factors your credit score represents.

Have a Long Credit History

It’s a little confusing to learn that you do not begin your credit life with a perfect score. Without any errors to speak of, why would your score start off any lower? Credit scores, however, are about building a credit reputation over time. It’s simply impossible to prove how you’ll respond to paying down debt until you do so over several years. If you’re early in your credit history or have minimal accounts, your score will improve as you continue to follow your set payment schedule.

Cultivate Account Variety

Whenever you hear about someone achieving the perfect credit score, they often boast a wide range of credit accounts.

Each line of credit variety speaks to a different type of spending. Things like student and car loans prove that you can pay off large sums over time and revolving accounts — like credit cards — prove that you manage your monthly budget with confidence.

Even different credit cards can offer a variety of angles and perks. Some people keep one card for emergencies and another for earning travel points or store credit. When you see each line of credit as a unique tool, you’re more likely to approach credit spending with a healthy mindset. This, in turn, shows up in your long-term credit report and score.

Keep Your Utilization Rates Low

Some financial experts believe that carrying a balance above 30 percent of your credit limit can damage your credit score. Though this frequently quoted 30 percent is seen as the hard and fast rule for credit utilization, experts say it is actually a cap. Carrying balance below this amount — preferably below 20% — is ideal for raising your credit score.

On the other hand, this is also a reminder that carrying a balance does not negate your chances for hitting that magical 850.

Only Open Necessary Accounts

Though account diversity can help perfect your credit score, opening unused accounts or cards with burdensome fees and stipulations can hurt your credit. Only open lines of credit when you need them — if you’re tempted to take your favorite retail store up on their credit card offer, for example, be sure you can pay off each purchase in a timely manner.

At the same time, be mindful of closing accounts once they’re opened. Cutting up that credit card simply because you have a new account means lowering your overall credit limit, and therefore possibly increasing your utilization rate. A card with a long life also shows your dedication to maintaining the account. If you’re ever unsure of the best approach, it’s best to chat with a financial advisor to determine what’s best for you.

Achieving the perfect credit score is all about balance. It’s possible to get in your own way without realizing it. Check in with your finances if you’re falling into any of the common traps that can keep your credit score stagnant.

Factors That Can Keep You From Achieving a Perfect Score

Achieving the perfect credit score is all about balance. It’s possible to get in your own way without realizing it. Check in with your finances if you’re falling into any of the common traps that can keep your credit score stagnant.

Multiple Hard Inquiries

Each time you apply for a new line of credit — for a car, credit car, or home, for example — lenders perform what is known as a hard inquiry into your history. These are not to be confused with soft inquiries, made by prospective employers or lenders checking out your report for preapprovals. Multiple hard inquiries tell a story that may worry lenders, like that you may be in financial trouble.

If you do choose to apply for a credit card, shop around to find the best one for you before hard inquiry takes place.

Frequent Late Payments

As mentioned earlier, timeliness is incredibly important to your credit score. You agreed upon a specific arrangement when you borrowed the money, and lenders would like to see that you can stick to it. Though some banks allow a pass for missing a payment by a few days once every one to two years, it’s important to stay on top of due dates the best you can.

History of Defaulting or Charge-Offs

When late or non-existent payments extend past six months, lenders may charge-off your credit account. This means that the bank no longer trusts you’re able to pay the owed amount. These unfortunate notes can last between six and seven years on your credit report and may lead to lenders denying you new lines of credit.

Closing Old Accounts

Remember that the length of your credit history accounts for a significant portion of your score. Just because you’ve paid off a tricky balance doesn’t mean you should close the card. If this was one of your earliest cards, your history’s length will shrink with the canceled account.

Keeping it Simple

Even if you pay all your balances off each month, sometimes you may just get stuck at a mediocre credit score. Reaching that highest score will likely require you to show off your credit skills. As you diversify your credit lines, you prove your financial know-how. By only focusing on one line of credit — such as student loans or minimal credit cards — your credit score could plateau.

The perfect credit score is achievable with a little strategy and plenty of patience. The ultimate number — a credit score of 850 — is possible over time and as you build your financial knowledge. Most importantly, understand that credit scores can fluctuate as life changes. Focus on your financial balance and wellbeing and the perfect credit score may be within your reach.

Sources: USA Today | Credit Cards

 

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