The perfect credit score
Achieving a perfect credit score doesn’t come with a lot of public accolades. Nobody’s going to recognize you in a crowd or pin a medal to your chest. But in one sense, you will be joining an exclusive club meant only for those individuals who’ve taken extraordinary care with their personal finances, borrowers of great diligence and discipline whose performance over time has earned them a score deserving of the best of the best.
Years of hard work and consummate credit responsibility have gone into producing this incredible achievement; now it’s time to exercise the elite borrowing power your perfect score entitles you to. Key benefits include the lowest mortgage rates available, a vast array of loan options and special offers like 0% introductory APR on fancy credit cards. And that’s just the beginning.
But what is a perfect credit score? Is it something real people can actually obtain or is it a lofty realm meant only for financial wizards? In this article, we’ll take a closer look at the perfect credit score, the strategies and behavior that go into its creation, and what a perfect score means when it comes to securing mortgages, loans and access to low-cost financing opportunities.
Unpacking the perfect credit score
The Fair Isaac Corporation works with the three main credit bureaus to analyze your credit information and create a credit score. The score typically exists on a range between 300-850, and it’s known as your FICO score. While FICO is the widely recognized industry leader with a 90% usage rate among top lenders, Experian, TransUnion and Equifax have also devised their own credit scoring system called VantageScore, and it operates along the same parameters.
Whichever credit score is used, the rating tops out at precisely 850. This is the numerical expression of flawless credit, a perfect credit score. And contrary to some notions out there, perfect scores do exist, if only rarely achieved.
According to recent information by Experian, only 1.2% of Americans own a perfect 850 credit score using the FICO model. That’s an exceedingly small percentage of the hundreds of millions who possess a credit score. Basically, 99 out 100 people do not have a perfect score. This begs the question: Besides a certain pride in exercising superior financial habits, what does scoring 850 really get you?
The perks of the highest credit score
If you’re fortunate enough to one day earn a credit score of 850, then you have mastered the game of credit and all it entails. But having vaulted to this elite level, what can you expect in terms of rewards?
The answer may not be what you expect. An 850 credit score, while incredibly rare and impressive, doesn’t actually provide the recipient with additional benefits not already given to those individuals who obtain credit scores of 840, 830, 820 or even 800. Translation: Similar financially prudent individuals who've ascended to the lofty realm of Excellent and Exceptional are pretty much on par with perfect score recipients, and therefore will also qualify for the easy access to credit that your perfect score enables.
This means that they, too, are eligible for low interest rates, low fees, incredibly attractive credit card offers and so on. Let’s take a closer look at what a premium-level credit score entitles you to:
- Low mortgage rates and costs: For many people, obtaining an elite credit score is all about receiving the best mortgage rates and the lowest accompanying fees, etc. A score of 800-850 will help homebuyers do just that. Additionally, scores in this range can help increase a borrower’s negotiating power on certain closing costs, especially if more than one lender is competing for your business.
- Best rates on private mortgage insurance: When it comes to purchasing a home, the money you’re able to provide the lender at closing matters in determining what kind of mortgage rates you can lock in. Of course, if you don’t put the suggested 20% down, then you’ll likely have to buy private mortgage insurance (PMI). Depending on your lender, having a credit score in the Exceptional range can give you access to the lowest monthly PMI premiums.
- Superior credit card offers: An exceptional credit score is frequently your ticket to getting approved for the best credit cards with the lowest APR from issuers. This means you can - you can qualify for a premium credit card, the kind with competitive awards programs, the prospect of waived annual fees and often 0% introductory APR.
- Additional benefits: Other industries are beginning to take into account your credit score when determining eligibility and setting rates. One specific example is the insurance sector. Credit scores are frequently factored in to identify low-risk consumers and those individuals less likely to file a claim. A credit score in the highest range correlates with lower monthly premiums. In fact, for auto insurance, a score in the Exceptional range can reduce six-month premiums by almost $200 over a Good credit score. It’s important to remember that other factors like driving record and previous claims also play a role in determining rates.
How to obtain a perfect credit score
As noted, a perfect score is difficult to obtain and the vast majority of Americans will never achieve it. And that’s OK. While there’s something truly admirable about striving for and obtaining perfection, any score that ranks you in the Excellent or Exceptional range (usually over 800) will entitle you to the most generous credit terms and offers.
The following are some of the key methods and strategies many people employ to maintain their perfect or near-perfect score:
- Consistently demonstrate a history of on-time payments
- Maintain an adequate number of open credit accounts
- Keep balances low in relation to credit limits
- Establish a lengthy credit history
- Limit the number of hard inquiries
- Check your credit report and credit score regularly
Consistently demonstrate a history of on-time payments
Individuals who achieve perfect or near perfect scores pay their bills on time and can show a track record of this over several years. While not the only factor, most people who score exceedingly high on their credit score have lengthy account histories dating back 10 years or longer showing that they’ve consistently made on-time payments. Many in this top tier have never missed a payment.
Maintain an adequate number of open credit accounts
High credit scores and the possession and use of more than one credit card is directly correlated to achieving a high credit score. The credit bureaus like to see borrowers intelligently managing debt from a diverse range of credit: auto loans, mortgages and credit cards.
Keep balances low in relation to credit limits
It’s wise to not just pay the monthly minimum but to try to pay your entire credit card bill every month. This reduces your credit utilization (amount you owe vs. the credit limits established for you), which is always a trait associated with an excellent credit score.
Establish a lengthy credit history
Are you thinking of canceling that department store credit card that you rarely use? Don’t. It’s essential to not only have multiple credit sources to achieve an elite-level score, but also be able to show a long credit history. While there’s no firm number the credit bureaus look for, many high achievers demonstrate credit histories of at least 10 years. The average age of all your available credit is also a determinant factor in establishing credit scores. This is just another reason why multiple cards held over a period of years is advantageous to your journey towards the high altitude of credit.
Limit the number of hard inquiries
Hard inquiries are when a lender looks at your credit report because you’ve applied for a credit card, a loan or a mortgage. In some ways, these inquiries are unavoidable if you’re trying to expand your credit possibilities or obtain a loan. You just have to be careful to space these out over time. While hard inquiries tend to only minimally impact scores, those who seek a perfect score will exercise prudence when initiating behavior that sparks a hard inquiry.
Check your credit report and credit score regularly
This should be a no-brainer but it’s worth mentioning. To be the best of the best, you need to know where you stand. You need to understand your strengths and weaknesses with regard to credit management and financial discipline. Updated information is critical. There are many places (including your online bank) that will provide access to your score free on a monthly basis. Free credit reports can be obtained from each credit bureau once a year for free. Take advantage of these opportunities to ensure things are accurate and that you don’t have any credit “blind spots” that are preventing you from skyrocketing to 850.
The perfect credit score may be elusive and uncommon, but it’s still very much achievable, permitted you start creating healthy financial habits at the outset and focus with a laser-like intensity on paying down debts on time and monitoring credit utilization.
It may also come as a relief to many prospective homeowners and those looking to refinance that the highest credit score in the land is not necessary to obtain the home of your dreams. A score of 850 is a wonderful goal, but in reality, Very Good (740-800) and Exceptional (800+) scores are usually sufficient to open the door to low-cost financing opportunities. Fresh monthly insights into your score and a determination to pay down debts and reduce credit card balances, play an important role in your journey towards establishing a credit score that will serve your lending needs.
*GUARANTEED RATE IS NOT A CREDIT REPAIR COMPANY, CREDIT REPORTING AGENCY, BROKER OR ADVISOR. You acknowledge that Guaranteed Rate is not a credit repair company or similarly regulated organization under applicable laws, and does not provide credit repair services. Where available, recommendations, tips and education materials are provided to you at no additional charge, and for educational purposes only. The services are intended to provide you with general information and assist you with identifying your options. The information is provided only to enable you to make your own choices about your personal finance, and is not intended to provide legal, tax or financial advice. We do not provide any services to repair or improve your credit profile or score, nor do we provide any representation that the information we provide will actually repair or improve your profile. Consult the services of a competent professional when you need any type of assistance. You acknowledge that Guaranteed Rate is not a “consumer reporting agency” as that term is defined in the Fair Credit Reporting Act as amended.