The biggest benefit to having perfect credit is that you’ll qualify for the best possible terms. The better your credit score is, the better the interest rates on what you borrow. If you want to finance a car, for example, perfect credit makes it much easier to qualify for a 0% APR deal. Lower interest rates mean you’ll save money and can pay off what you borrow faster because more of your payment is going towards the principal. Lower interest rates can also mean that you can afford to borrow more.
Perfect credit can also yield better rewards when it comes to credit cards. For example, having good credit might qualify you for a card with a 40,000-point introductory bonus but an excellent or perfect score could open the door to a card with a 100,000-point bonus. If you use credit primarily to earn rewards, a perfect score can make a valuable difference in the quality of the cards you’re offered.
What does it take to earn a place in the perfect credit score club?
The truth is that a perfect score is rare and very few people ever hit this milestone. Don’t let that fact discourage you, though. Excellent credit, even below the 850 mark, is just as good as perfect when it comes to getting those amazing credit terms.
There’s no secret to perfect credit, however. All it really takes is discipline and sound financial habits. Read on to learn how to become a part of the credit elite.
What is a perfect credit score anyway?
Before you can define what perfect credit is, it helps to know a little bit about credit scores in general. Credit scores are based on the information in your credit report, which details things like the types of credit products you use (and have used in the past), how much you owe, how much credit is extended to you and how timely you are when you pay your bills. Consumer credit reports are created by the three major credit bureaus: Equifax, Experian and TransUnion.
When it comes to credit scores, you have more than one. Dozens, actually. Many different scoring models exist, but the two most well-known are the FICO® score and the VantageScore®. FICO® scores are issued by the Fair Isaac Corporation; VantageScores® are issued by the three credit bureaus.
Credit score ranges
FICO® and VantageScore® calculate scores differently but the range is the same: 300 to 850. The credit bureaus don’t judge whether a score is good or bad. Lenders decide that for themselves. Each lender sets its own cutoffs for each credit score range, but many look like this:
|750 to 850
|700 to 749
|650 to 699
|550 to 649
|549 & Below
A perfect score is 850, and the lowest possible score is 300. Anything over 760 is very likely to be called “excellent” by any lender and qualify the consumer for the best possible terms.
It’s possible to have a perfect score on the FICO® scale but not on VantageScore® and vice versa. Furthermore, your Experian FICO® score can be different from your Equifax or TransUnion FICO® score, based on what’s in your credit reports. Ready for one more layer of complication? Your credit score can vary depending on who’s looking. Auto lenders see a score tailored to the auto industry, and mortgage lenders see a score tailored to the mortgage industry. Several other scoring models are tailored to other industries.
Credit scores aren’t fixed; they can and do change over time. Your score changes every time there’s a change in the data that is reported to your credit file. Changes are virtually guaranteed. For example, part of your credit score is based on the average age of your accounts. Every month your accounts get one month older, so you might see your score change even if nothing happened other than the passage of time.
It’s entirely possible to hit the 850 mark but not stay there.
Getting into the perfect 850 credit score club
No magic is required for entry into the perfect credit score club. The journey begins with a thorough understanding of how credit scores are calculated.
FICO® scores, for example, are based on five specific factors:
- Payment history
- Credit utilization (the amount of debt you carry in relation to the amount of credit you have)
- Age of your credit history
- Types of credit you use
These factors affect your score differently. Payment history has the most impact, followed by credit utilization.
The VantageScore® breakdown looks a little different. This model takes into account:
- Payment history
- Age and type of credit
- Percent of credit limit used
- Total balances/debt
- Recent credit behavior and inquiries
- Available credit
Again, payment history takes the top spot. Age of credit history, type of credit you use and credit utilization are also highly influential.
Now that you know what factors are considered when your FICO® and VantageScore® are calculated, you can work to create a strategy to hit the perfect credit score target. Do this if want a perfect score:
1. Pay your bills on time, every time
A positive payment history is crucial and a perfect score is virtually impossible for consumers with late payments or collections. Late payments and other negative marks like collection accounts or charge-offs can stay on your credit for seven years. A Chapter 13 bankruptcy stays in your file for 10 years. An unpaid tax lien will remain in your file indefinitely. All of this data generally has the strongest negative impact on your score for the first two years, but they can still keep you from getting into the perfect credit score club as they age.
Start your perfect payment history now. Set up automatic payments to avoid missing a due date. If you prefer to schedule payments individually or need to pay some bills by check, use a calendar to keep track of payment dates (and give yourself a few days’ buffer when you put the due dates on the calendar). If you have to mail a payment, allow for mail time.
2. Optimize your credit utilization
Avoid maxing out any credit card, even if it has a low limit. Consumers with top credit scores use, on average, about 7 percent of their total available credit. The utilization ratio is calculated for each card and overall.
If you carry balances on one or more credit cards, pay them all down to below ten percent of the limits to get closer to a perfect score.
If you have a card that you use heavily but pay off every month, make your payment before the balance is reported to the credit bureaus. You’ll have to call the card issuer to find out when that is, but it’s usually on or soon after the statement closing date each month. Otherwise your utilization could appear artificially high. Remember, the card issuer doesn’t report every time you make a purchase or a payment. Those reports are generally submitted once every month (or two).
3. Mix up your credit use
Credit cards, student loans, car loans and mortgages are all types of debt but for credit scoring purposes, they’re not viewed equally. Credit cards and lines of credit fall are revolving debt. Revolving debt means that your available credit—and what you owe—can go up or down over time as you make new purchases or make a payment on your balance.
Loans, however, are installment debt. Installment debt has a fixed payment amount and a predetermined payoff date. As you pay the balance down, you can’t add to it by making new purchases.
Both revolving debt and installment debt affect your credit scores but of the two, revolving debt carries more weight. That’s because revolving debt directly influences your credit utilization. Having both types of debt on your credit report is important because it shows lenders that you understand how to manage different kinds of financial obligations.
4. Get started with credit early if you can
Both your FICO® and VantageScore® scores consider the age of your credit history. The more years of credit experience you have under your belt, the better. Get a credit card in your 20s and use it responsibly. By the time you reach your 30s and you’re ready to buy a home, you’ve already got a lengthy credit history behind you.
If you’ve got older credit accounts that you don’t use, don’t rush to shut them down. While the account will still show up on your credit, the fact that it’s closed means you have less available credit, which can negatively affect your utilization if you carry balances on other cards. Also, closed accounts in good standing will fall off your credit report after ten years, but an open account stays in your file indefinitely, boosting your average file age with every passing year. Consumers with top credit scores often have an account that is 20 or 25 years old or older.
5. Be a snob when it comes to applying for new credit
When you apply for a loan or a credit card and the lender checks your credit, it creates a new inquiry on your credit report. Inquiries by themselves only trim a few points off your score at a time but lots of them in a short time frame can cause more damage. Plus, many creditors will automatically reject an application if the borrower has more than two or three inquiries in the past six or 12 months.
The exception is when you rate-shop for certain types of loans (mortgage, auto loans or student loans). For those, you’ve got a 14- to 45-day window during which all inquiries coming from the same type of lender are treated as a single inquiry for credit scoring. Also, these types of inquiries don’t hurt your score at all for the first 30 days, so you can inquire with a few lenders without worrying that the earlier inquiries will hurt your chances on the later applications.
The rate-shopping time frame depends on the scoring model used. Lenders decide what scoring model to purchase, and some may use older models. You probably can’t find out in advance which score a lender will use, so to play it safe, limit your loan search to 14 days.
If you’re on the hunt for a credit card, there is no rate-shopping window. The best thing you can do is to be selective. Take your time to compare card options before making your choice.
Inquiries remain in your file for two years but affect your credit score for just one year.
Maintaining your perfect score
If you practice these five great credit habits, you’re well on your way to a perfect credit score. Keep up the same behaviors to maintain your great score once you’ve got it.
One other thing you need to do: check your credit report.
Monitoring your credit on a regular basis allows you to keep tabs on changes that could affect your score.
The other and perhaps more important reason is to check for signs of identity theft. An estimated 154 million Americans were victims of identity theft in 2016 and 15% of those targeted said they discovered the fraud by checking their credit report.
You can get one free credit report per year from each of the three credit bureaus. For more regular updates, sign up for Credit Sesame’s free credit monitoring service. You’ll get a free credit report summary to track your progress and you’ll receive email alerts any time your credit score changes.
Checking your own report or score never hurts your credit.
Is a perfect score really worth the effort?
Rather than focus on a perfect 850 credit score, think about why you want it. Remember, most lenders view a 760 credit score as the same quality as an 850 score. In other words, if you’re already in that high range, the odds of getting turned down because of your credit score or getting stuck with a higher rate are slim to none.