Highest Credit Score Possible – Is a Perfect Credit Score Even Necessary?

highest credit score

What is the Highest Credit Score?

Using the FICO scoring model, the highest credit score you can achieve is 850. FICO is an acronym for Fair Isaac Corporation, the company that developed the FICO credit scoring models. However, any score over 740 is generally considered to be really good.  A score of 740 and above puts you in range for the best interest rates on things like credit cards, mortgages, and car loans.  There is no need to score a perfect 850 to get the best rates.

Even if you succeed in getting the highest credit score, you’re unlikely to keep it there month after month. Scores fluctuate because they are a snapshot of your credit profile.  FICO, and at its competitor VantageScore are the most used scoring models.  Both are on a scale that ranges from 300-850. Credit scoring company FICO says about 1% of its scores reach 850. VantageScore spokespeople say fewer than 1% of its credit scores are perfect.

Understanding Credit Scores 

Credit scores are usually broken doen ito ranges from poor, fair, good, very good, and excellent.  Very good is from 740-799, and excellent is 800 and above.  For practical purposes, a credit score of 740 and above will get you the best rates and deals

“Credit scores are generally broken into the ranges poor, fair, good, very good, and excellent. The chart below outlines these various credit score ranges. As you can see, Excellent is generally defined as anything above 800 and 850, while a Good credit score is considered anything between 670 and 739. We’ll dive into more detail on ways to achieve the highest credit score later in this article, but for now let’s look at why it’s important to have an understanding of the highest credit score and how it can impact you.”  Source: creditsesame.com

How Does It Work? 

People achieve max credit scores by practicing good credit habits consistently and for a long time.  According to FICO, those who get perfect credit scores:

  • pay on time
  • use credit lightly
  • have a long credit history
  • rarely open a new account

As you might expect, older borrowers are more likely to have high scores than younger ones.  Also, scores fluctuate because they are a snapshot of your credit profile. Even if you succeed in getting the highest credit score once, you’re not likely to keep it month after month.

“Although there are many different credit scores, your main FICO (Fair Isaac Corp.) score is the gold standard that financial institutions use in deciding whether to lend money or issue a credit to consumers. Your FICO score isn’t actually a single score. You have one from each of the three credit reporting agencies – Experian, TransUnion, and Equifax. Each FICO score is based exclusively on the report from that credit bureau. The score that FICO reports to lenders could be from any one of its 50 different scoring models, but your main score is the middle score from the three credit bureaus, which may have slightly different data. If you have scores of 720, 750 and 770, you have a FICO score of 750. (And you need to take a hard look at your credit reports because those three numbers are considered wildly different.)”  Source: investopedia.com

What’s the Range?

That’s really what you want to know, right? The best-known range of FICO scores is 300-850. Anything above 700 is generally considered to be good. FICO also offers industry-specific FICO scores, such as for credit cards or auto loans, which can range from 250 to 900. There are many FICO versions; FICO 9 is the newest. Mortgage lenders tend to use older FICO score versions.

Here are FICO’s basic credit score ranges:
  • Exceptional Credit: 800-850
  • Very Good Credit: 740-799
  • Good Credit: 670-739
  • Fair Credit: 580-669
  • Poor Credit: Under 580

According to FICO, the higher the score, the lower the risk you pose to a lender. But no score says whether a specific individual will be a “good” or “bad” customer.  FICO undoubtedly has a team of attorneys telling it to drive home the point that it (the company) doesn’t judge somebody’s credit risk. It only reports a score and can provide guidance based on statistical data. A person isn’t a high credit risk per se if they have a 500 FICO score. FICO just reports, based on its statistics, that people with a lower score have defaulted on loans more than those with a higher score. See the difference? (Source: investopedia.com)

Is the Highest Credit Score Important?

A good credit score can unlock a lot of opportunities.  Banks and credit card companies like to work with people who have good credit scores.  For lenders, it means there’s less of a risk that a borrower will skip a payment or default on debt.   A good score can give you access to lower interest rates.  Also, you won’t have to spend as much time searching for loan providers. It might even help you find a great apartment or get the job you want.  An increasing number of landlords and employers look at credit reports.  It helps them decide who to rent to or hire.

If you’re like most people in the U.S., your credit score falls somewhere around 620. As a matter of fact, almost 40% percent of people under 30 years old have a score less than 621. About 30% percent of people in this group are doing a bit better with a score of 621 to 680. Only 2 percent of people under the age of 30 years old actually achieve a 780 score or above.  It’s pretty obvious that there is plenty of room for improvement.

Understanding the credit ranges can give you the motivation and knowledge needed to improve your credit score.  Then, you can improve your financial stature.  It will help you to get better interest rates on everything from mortgages to credit cards.

Is a Perfect Credit Score Necessary?

Is a perfect credit score really necessary when there’s such a big range from excellent to perfect?  The simple answer is – No.  While obtaining an 850 is a great goal, it might not be realistic. Remember, just falling into the Very Good to Excellent range will likely give you the same benefits as having a perfect or max credit score.

“An 850 score is theoretically the highest possible credit score, but only 3% of percent of Credit Sesame members have a score above 800 (2018). What’s more, as we saw in the data presented earlier, only 2 percent of people in the U.S. under 30 years old have a FICO Score greater than 780. In other words, an 850 credit score is a great goal, but it’s also an anomaly.  Why does this matter?”

“When you purchase a car or apply for a mortgage, the lender will pull a copy of your credit report. They will generally look for you to fall within a certain range. The mortgage interest rate you qualify for will likely not change inside that particular range. For example, if you qualify for a 3.5 percent interest rate with a “Good” credit score of 720, that rate is likely not going to improve unless you reach the next tier of “Very Good” or drop below to “Fair.” (Source: creditsesame.com)

What is the Highest Possible Credit Score?

Each credit reporting agency – Experian, TransUnion, Equifax – uses a slightly different scoring model.  FICO vs. VantageScore 3.0 have slight variations in their scoring ranges. What’s considered Very Good to Excellent for TransUnion might be slightly different than what’s considered Very Good to Excellent for Equifax.  Credit scoring agencies vary on what credit scores fall into what range. The primary reason for these differences is the scoring algorithm each credit bureau uses. Also, each agency’s definition is different when it comes to what score corresponds with which category. However, the highest possible credit score available on either the FICO or VantageScore Scale is 850.

Benefits of knowing the Credit Score Ranges

Knowing the maximum credit score is important because it gives you a context for what’s possible.  Knowing your current score and the different credit ranges will help you understand how to improve.  You will understand what you need to achieve in order to break into the next higher category.  Eventually, you can break through to the Very Good to Excellent categories. If you’re like most of the U.S. population, you have some room for improvement.

FICO says 35% of your score derives from your payment history and 30% from the amount you owe (credit utilization). Length of credit history counts for 15%, and mix of accounts and new credit inquiries are factored in at 10% each. Of course, in actually calculating the score, each of these categories is broken down even further, and FICO doesn’t disclose how that works. The credit bureaus that create credit scores may also change how they make their calculations – sometimes for your benefit. For example, a change was made recently to reduce the weight of medical bills, tax liens, and civil judgments. (Source: investopedia.com)

Ways to improve your credit score 

If you’re looking to improve your score, there are some basics that you can work on. Those are:

  1. Ontime Payments ALWAYS – Pay your bills on time, PERIOD.  This single activity counts for 35% of your total credit score.  Payment history heavily influences your credit score. In fact, it is the most influential factor for FICO and VantageScore. To stay on top of your payments, set up a calendar reminder or enroll in automatic payments. The on-time payment goal applies to all your bills, including utilities, rent and cell phone service.
  2. Don’t Max Your Credit Limit – Keep your credit card balances low, between 10%-30%. Credit utilization refers to how much money you put on your credit cards and other credit lines every month relative to the available limit. You have a high credit utilization if you put a lot of money on your credit cards and get closer to the maximum. On the other hand, you have a low credit utilization if you only use a little bit of your available credit. Using too much credit lowers your score because it makes you look like a riskier borrower.
  3. Don’t Close Older Accounts – Make an effort to keep your oldest accounts open, but with low or no outstanding balances.  You can’t magically create 10 years of credit history. What you can do is choose one or two credit cards to keep active and never cancel. Not only will this help you build a longer credit history, but it can also help you keep your credit-utilization rate low.  Since more active credit cards in your name means more available credit.
  4. Understand Debt-to-Credit Ratio – Debt-to-credit is the total amount you owe every month divided by the total amount of money you earn each month, usually expressed as a percentage. Always manage your available credit vs. debt ratio.  The general rule of thumb with credit utilization is to stay below 30%. This applies to each individual card and your total credit utilization ratio. Strategies for improving your credit utilization ratio focus on reducing the numerator (shrinking the balances owed) and managing the denominator (maintaining or increasing the amount of credit available).
  5. Keep New Inquiries to a Minimum – Don’t have too many inquiries for new credit.  Applying for new credit and loans can impact your score, since lenders will do a “hard inquiry” on your credit each time you apply. Too many hard inquiries over time may indicate that you’re taking on more debt than you can handle.  This can be a credit score mistake.
  6. Check Your Credit Report Regularly – Keep an eye on your credit report.  Each credit reporting agency gives you two reports per year free.  That’s six free reports if you rotate through each credit bureau. If you catch something inaccurate on your report, dispute the error.  Send a written dispute letter to all three credit bureaus (Experian, Equifax and Transunion).
  7. Consider Your credit mix—the different types of loan products in your credit history.  This has a lesser influence on your credit score, but is worth considering. Scoring models often take into account your ability to responsibly manage different types of financing, from credit cards to secured loans like mortgages, or personal loans.

The strongest credit accounts have multiple types of credit on them. This shows banks and lenders that you’re experienced at managing different credit types. Using a few different types of credit and loans can help you raise your score. If you put some of these strategies to work now, it is not difficult to move up from one credit ranking to another.

Ways to KEEP your credit score high

Many of the same strategies used to improve your credit score are the ones used to maintain a great credit score. These strategies, of course, are directly related to the factors that contribute to your overall score. For example, paying your bills on time accounts for roughly 35 percent of your credit score. Signing up for automatic payments to avoid missed or late payments can be a way to keep your high credit score.  Similarly, your credit utilization – which is the total available credit you have vs. the total debt you have, accounts for 30 percent of your credit score. When you keep your balances low, this improves your credit utilization and therefore helps keep your score high.

Getting the highest credit score possible 

First, you need to become familiar with what the highest credit score is.  The next step is to understand how to achieve it.  Finally, you need to be disciplined and develop the habits necessary to maintain it.  Clearly, this will put you in a better financial situation – even if you fall short of perfection. Your credit score impacts your ability to make big purchases like a home or car.  It also impacts smaller things like whether or not you have to put a deposit down when applying for utilities or a cell phone.  Getting a perfect score of 850 may or may not be atainable any time soon.  But, getting a score in the “Good” or “Excellent” range is certainly acheivable.  If you take action and follow the steps outlined, you’ll be on your way to more financial freedom.

What if I Really Want the Max Credit Score? 

Put away your perfectionist ways when it comes to your credit score. While it is theoretically possible to achieve a perfect 850 score, statistically, it probably won’t happen. In fact, less than 1% of all consumers will ever see an 850.  And, even if they do, they probably won’t see it for long.  FICO scores are constantly recalculated by the credit bureaus.  And it’s not like you can know with absolute certainty what is affecting your credit score.

There is no need to obsess about hitting that 850 mark. But if you want to try and reach it, keep it simple.  Pay all your bills on time and eliminate nearly all of your debt, excluding a mortgage.  Also, use on average, no more than 7% of your available credit from all your accounts.  Finally, be careful with balance transfers, closing a credit card or having too many of them.

An excellent credit score is good enough 

You don’t need a perfect credit score to get the best deals. A credit score of 720 or higher is generally considered excellent.  Credit scores are tools to help lenders decide how likely you are to repay money. And you won’t get a lower interest rate for having an 850 rather than an 815.

That’s pretty great news if you aspire to get into the group of people who have top-tier credit but you don’t want to obsess over every single point in an effort to get the highest score possible.  Anyone with a score of 800 or higher already qualifies for the best terms offered.  It makes no sense to open new accounts strictly for the purpose of chasing a higher credit score.  For the record, FICO reveals that 20.7% of its scores were 800 or higher as of April 2017.  About 17% of VantageScores are that high.

Here’s What the 800 club looks like – According to FICO

An 800 won’t get you the bragging rights that come with the highest credit score possible of 850.  However, an excellent credit score will get you the same terms on loans and credit cards.  Here’s what FICO says members of the 800 club tend to have in common:

  • A credit history of about 25 years.
  • Owes less than $3,500 on credit cards.
  • Uses only 7% of credit limit.
  • No late payments on credit reports, meaning any late payments were more than seven years ago.

Still determined to get the highest credit score? 

If you really, really want to fight for every possible point, here are some tips that can help:

  • No Late Payments – Pay every bill on time, every time.
  • Stay Under 10% of Used Credit – Keep your credit balances well under 10% of your credit limits.
  • Establish Credit, Don’t Use It – Have multiple credit accounts and installment loans as well as credit cards.
  • If your credit history is on the short side, ask to be an authorized user on an old, established credit card with a spotless payment record and low credit utilization.
  • Apply for new credit only if you really need it.

The odds of ever getting a perfect score are slim. But if you do, enjoy your 850 while it lasts. And perhaps take a photo to document it. It may not be there next time you look. (Source: nerdwallet.com)

The Bottom Line

Although it’s nice to have a perfect or near-perfect score, in reality, it means very little.  Nevertheless, it is an honor that less than 1% of the population will ever achieve. Once your score gets and remains above 780, lenders see you as a low credit risk. You’ll get the best interest rates and are pretty much guaranteed approval to any loan you apply for.  At least as long as the amount you want to borrow fits your income level.

Having perfect credit scores may not be necessary to qualify for great rates on loans and mortgages.  But, improving poor scores to good, or good scores to excellent, can make a big difference.  By following the right credit habits, you can make improvements to your scores.  And if you happen to reach 850 along the way, then consider it a cool bonus.  Be sure to take a picture of it so you can brag about it to your friends and family. That perfect score may not be there next time you check.

 

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