How to Set Yourself Up for a Perfect Credit Score
When my husband and I applied for a home equity line of credit recently, the bank checked our credit scores. Lenders typically do this to determine how much of a credit risk you are, how much they’re willing to lend you and what interest rate you’ll pay. As we were signing our closing papers, the loan officer commented that I had the highest credit score she had ever seen. It was 833. That’s just 17 points shy of a perfect 850 credit score — a humble brag, I know.
Honestly, though, my high-credit money personality doesn’t make me an anomaly. Nearly 21 percent of U.S. consumers have a FICO credit score of 800 to 850 — which is considered exceptional, according to FICO. So it’s not impossible to have a score above 800, or even a perfect 850.
Get advice from people who have perfect — or near-perfect — scores to find out how you can too.
Understand the Credit Score Range
The FICO credit score — the score most commonly used by lenders — ranges from 300 to 850. Some industry-specific FICO scores range from 250 to 900. The average FICO credit score is 700, according to FICO. That is considered a good credit score, but you’ll get the best deals from lenders if your score is 760 or higher, said credit expert John Ulzheimer, formerly of FICO.
VantageScore is another credit scoring model created by the three credit bureaus: Equifax, Experian and TransUnion. The latest version of the VantageScore also ranges from 300 to 850.
Know What Affects Your Credit Score
Knowing what goes into your credit score will help you understand why you have the score you do and what you can do to improve your credit score. The commonly used FICO score is calculated using five factors: payment history, length of credit history, amounts owed, new credit and credit mix.
These factors aren’t weighted equally, though. Payment history and amounts owed are the most important factors and contribute to 35 percent and 30 percent, respectively, of a credit score. Length of credit history — that is, how long you’ve had credit — accounts for 15 percent of your score. New credit, or accounts that have been opened recently, makes up 10 percent. Your mix of credit cards, retail accounts, installment loans and mortgage loans makes up the remaining 10 percent.
Check Your Credit Regularly
People with a perfect credit score or nearly perfect score check their credit regularly. Your credit report — which you can get for free at AnnualCreditReport.com — shows where you stand when it comes to the factors used for calculating your credit score.
If you see your score dip, checking your credit report can help you determine what changed, said Neal Frankle, a financial planner and founder of credit repair site Credit Pilgrim. “If you see it rise, do more of what was behind that rise,” he said.
Checking your report often also can help you find mistakes on your credit report that are hurting your score. “Unfortunately, it’s up to you to catch those errors and correct them,” Frankle said. Contact the credit bureaus and your creditors to dispute any mistakes you find and have them removed from your report.
Always Make Payments on Time
Considering that your payment history accounts for 35 percent of your credit score, making late payments can keep you out of the perfect score club. Louis DeNicola, a freelance writer specializing in personal finance and credit, said his VantageScore is above 800 and his FICO score is nearly 800 because he’s never had a late payment.
“From the beginning, I treated credit cards like debit cards and only purchased what I could afford to pay off,” DeNicola said. “Since I know I have enough money to cover what I buy, I’ve turned on autopay for all my credit cards to ensure I don’t accidentally miss a payment.”
Make Payments Before They’re Due
To increase your chances of getting a perfect credit score, don’t wait until payments are due. Amy Rutherford and husband Tim, founders of the blog Go With Less, discovered that paying off credit card balances before the payment due date boosted their credit scores.
“We have learned that our credit score will go down as much as 30 points instantly if we charge too much on a specific card within a billing cycle,” Amy Rutherford said. “We will pay a balance on a credit card before the due date to get this back in balance.”
Keep Your Credit Utilization Very Low
Having a lot of credit cards or lines of credit won’t necessarily hurt you if you keep your credit utilization ratio low. That’s the technical term for the percentage of available credit that you are using.
“We keep our scores high by keeping our utilization extremely low,” said Holly Johnson, who has a credit score of 825 and created the blog Club Thrifty with her husband, Greg. “Even though our credit cards may occasionally have balances, we always pay them off before the due date and remain 100 percent debt-free.”
The key is to keep your credit utilization at 10 percent of your available credit or lower, said Lotasha Thomas, a financial educator and CEO of My Finances Matter. Doing that was one of the things that helped Thomas boost her credit score to 810 from 465.
Build a Long Credit History
You can control whether you make payments on time and how much you owe. But to get a perfect credit score, you also need to have a long credit history. “You can’t control how old you are, so that’s where many people miss out on points,” Ulzheimer said. “You really need to have a credit report that’s well over 20 years old.”
Typically, that takes time. But DeNicola found a way around that obstacle to a high score. His mom added him as an authorized user on her credit card when he was younger. “So, in spite only being 29 years old, my oldest account is over 22 years old,” DeNicola said. That account has helped increase the average age of his accounts and gave him a longer credit history.
Don’t Open Lots of New Accounts at Once
DeNicola’s score would be even higher if he hadn’t opened several credit cards in recent years. This brought down the average age of his accounts. Opening several accounts at once can have a bigger impact on the credit scores of people who don’t have a long credit history because it will lower their average account age, according to myFICO.
To get a perfect score, “don’t try to obtain a lot of credit in a short period of time,” Thomas said. Her score has benefited because she rarely applies for new credit.
Don’t Close Old Accounts
Some people wrongly assume that a credit report with fewer accounts will score better than a credit report with more lines of credit, Ulzheimer said. They close accounts they don’t regularly use or try to get old, closed accounts removed from their credit reports.
“This will lessen the average age of your accounts and can cause your scores to go down,” Ulzheimer said. Plus, closing credit card accounts will reduce the amount of available credit you have. As a result, your credit utilization ratio could rise and your credit score could drop.
Have a Good Mix of Credit
Ulzheimer said that both the FICO and VantageScore systems consider the types of accounts appearing on your credit reports — that is, whether you have a mix of credit cards, retail accounts, installment loans and mortgage loans. “It’s a very small contributor to your score,” he said. “But if you want 850, you’ve got to pay attention to everything, including the small stuff.”
That doesn’t mean you should run out and open several new accounts at once. But you should be aware that having fewer types of accounts can prevent you from getting a perfect score. Rutherford said her score isn’t perfect because she and her husband paid off their mortgage and car loans. Credit cards are their only lines of credit, so her credit mix is lacking.
Is It Worth It to Pursue a Perfect Score?
You don’t have to have a perfect credit score to get the best credit terms. Both Frankle and Ulzheimer said a score of 760 or higher will help you qualify for the best credit offers. “If you want to be a perfectionist, shoot for 800,” Frankle said. “But anything above that is overkill.”
You don’t necessarily have to go out of your way to get an exceptional score. “If you manage your credit responsibility — as in maintaining low debt and never missing payments — then your scores really have no choice but to be great,” Ulzheimer said. “And as your credit reports age, you’ll gain those points organically.”
That’s pretty much the strategy I’ve used, and it’s worked for me.
Kailiokalani Davison contributed to the reporting of this article.