Great Question!
I am so happy you ask. Because the reality is that when it comes to credit scores there are two extreme sides. Those who believe that CASH is King, think that credit is the enemy and needs to be avoided at all costs. While the other extreme believe that CREDIT is the BEST tool in their financial toolbox and overuse or misuse it. Wherever you may fall on the radar, the driving force behind any stance is the perception of “value”.
Is a perfect credit score valuable? The short answer to this question is NO.
Now, before you click away from this article telling the world that Jenny the “Credit Specialist” told me that a perfect credit score isn’t worth it, let me add this disclaimer. A perfect credit score may not be worth it; however, an excellent score can save you thousands of dollars.
What is a Perfect Score?
FICO, which is the leading analytics software company that measures consumer credit risk, score scale ranges from 300 on the low end all the way up to 850. So, a perfect credit score according to the Fair Isaac Co. is an 850, a number that only 1% of Americans have bragging rights over. The rest of Americans fall into the different ranges listed below:
Where do you stand on this chart??
Wherever you are on this chart I want to take a minute and redefine the “perfect credit score goal” and encourage you by either taking the pressure off or helping you to see that an excellent score that you are in control of is possible.
The real “perfect credit score” that we should aim for is anywhere between 760-780. Any special treatments; rates that you would receive at an 850 from lenders will be the same at that score. Aiming for this score especially before making major financial decisions will allow you to save thousands without the stress of perfection.
So now that we have defined a new perfect, how do we get there??
3 Fast Rules on How to Get a 760
1. Keep a Low Utilization Rate. How you utilize your credit plays a major role in achieving this new perfect. Credit utilization is calculated by taking the total balances across all your cards and comparing it to your total available credit. The lower your utilization, the better off you will be score-wise. You should aim to be anywhere under 10% in order to maximize points within your credit score.
2. Pay on Time, Every Time. Payment history counts for a whopping 35% of your score. In order to get an ideal 760 credit score, perfection is not necessary; however, negative marks such as late payments must be ideally older than 24 months. The longer your history of paying on time every time, the greater your chance is to reach your goal of an ideal score.
3. Put Some Age on It. I am not sure how well time heals all wounds, but it sure can have a major impact on your credit. The algorithm wants to see a long history of good behavior. The best rule of thumb is to avoid applying for credit often because each line of credit that you apply for reduces the overall average age of your credit history. The goal should be to have an average age of 7+ years.
Follow these 3 Fast Rules and you will find yourself well on your way to the land of 700s filled with awesome rates, preferential treatments, and bragging rights.
Want to learn more about consumer and business credit feel free to leave your questions in the comments below.