Your credit report and score affect your life in a number of ways. For starters, your credit score affects your ability to acquire a loan, rent an apartment, and sometimes, even qualify for a job.
A credit report shows your bill payment history, current debts, and other financial information. Companies and lenders use this credit report to calculate your credit score.
VantageScore and FICO are the two main credit scoring models. In each model, the credit score ranges are 300 for the lowest and 850 for the highest. Is it possible to earn a perfect credit score?
Even if you have responsible credit habits, it is still likely that your credit score will never reach a perfect score of 850. This is extremely difficult to achieve. In fact, according to FICO, out of 200 million consumers with credit scores, the average credit score is 704. FICO also reports that only one percent of Americans have a perfect FICO credit score.
So, Is It Possible To Achieve A Perfect Credit Score?
It is possible to earn a perfect credit score. While it is rare to have an excellent credit score of 850, people do achieve it. The real question is – is a perfect credit score necessary?
In short, having a perfect credit score of 850 is not really that important. In fact, aiming for a credit score closer to the 760 mark is a more practical goal.
Why? A credit score of 760 is almost always high enough to get the best treatment from lenders, landlords, and employers. The reality is, if you reach a credit score of 700 or above, you are within the top 50 percent of American consumers.
Make no mistake, you should always aim for the best credit score you can and try to improve a bad credit score but fixating over attaining a perfect score can be a waste of time. It’s more important to raise your credit score, especially if you have poor credit.
What you should really focus on is making sure score falls within a range most lenders would deem excellent credit.
What Is Your Credit Score Range And Why Does It Matter?
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As mentioned, you do not need to achieve a perfect credit score to qualify for the best rates on loans and mortgages. In fact, most scores in the 700s are good enough to qualify for great interest rates and large loans. A credit score of 760 tends to be the magic number. Anything above 760 usually qualifies for the best rates on the market.
Most financial institutions care less about the specific number of your credit score. Instead, banks and credit card companies concern themselves with what range your credit score lands within.
For example, most credit score categories look similar to this:
- Poor: 300 – 579
- Fair: 580 – 669
- Good: 670 – 739
- Very Good: 740 – 799
- Excellent: 800 or higher
As you can see, the ranges for credit score classes are quite broad. As long as your credit score falls somewhere between the range of 740 and 850, most lenders offer you preferred rates.
Improving your score from 750 to 780 would likely have little impact on the interest rates you would be offered. Both rates fall within the same range. But moving your score from 650 to 720 could have a serious impact on the interest rates you would be offered because it would move your score into the next ranked tier.
How Do You Build A Higher Credit Score?
There are a number of strategies you can use to help build your credit score. For both VantageScore and FICO scoring models, payment history is the most important factor. This is followed by the amount a person owes.
Some of the ways you can improve your credit score are:
Pay Your Bills On Time
This is undoubtedly the thing that influences your credit score the most.
While it always helps to be mindful of upcoming bills, there are easier ways to stay on top of them. Consider setting up automatic bill payments.
Keep An Eye Out For Negative Marks On Your Credit Report
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Sometimes mistakes happen and there could be negative marks on your credit report that don’t belong there. Check your credit reports often and make sure there are no errors. You can always dispute mistakes and have them fixed. Apps like Credit Karma and Credit Sesame are an easy way to get a free credit score to keep an eye on information from the reporting agencies.
Remember, being aware of your credit score makes you more likely to improve it. If you find legitimate negative marks on your credit report, you can counter their impact by improving your credit score in other ways.
Avoid Maxing Out Your Existing Credit
Your credit utilization rate also impacts your credit score. For example, if you have credit cards with a combined credit limit of $5,000, avoid spending that full limit.
Essentially, your credit score improves if lenders know that you are not desperate for credit. Try using less than 30 percent of your available credit to improve your credit score over time.
Limit Credit Inquiries
When you apply for credit or something like an auto loan, it is considered a hard credit inquiry. Applying for new credit can seem like a sign that someone is dealing with financial hardship, repeated inquiries can lower even a good credit score.
While these inquires are less important than paying bills on time, if you are shooting for the highest credit score possible, you should only seek credit when you really need it and are confident you will be approved.
Avoid Cancelling Credit Cards Needlessly
Long credit histories improve your credit rating while constantly switching up sources of credit reduces your score.
Lenders want to make sure that you will stick with them if they approve you for credit. Rather than apply for numerous credit cards, you should choose a few and keep them active over a longer period.
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