With roughly 31 percent of people sporting “bad” credit and the average American carrying a “fair” score of just 668, according to WalletHub data, simply reaching the land of “good” credit standing would represent an excellent achievement. Relative to bad credit, it would also unleash a savings windfall of around $4,400 per year for the average person with a mortgage, auto loan and credit card, per our calculations.
Some people aim a bit higher, however, striving not just for good or excellent but for the mythical perfection of an 850 credit score. Is that even possible? You bet. Our data show that an estimated 0.1 percent of the adult population — about 245,000 people — is in the 850 credit-score club. The waiting list is even longer, with roughly 1 in 10 people bearing scores higher than 810.
Reaching the peak of credit perfection is largely about bragging rights, however. Lenders don’t create unique underwriting standards for a fraction of 1 percent of the population, which means anyone with a score in the 90th percentile (810-plus) is likely to qualify for the lowest interest rates, the most lucrative rewards and the cheapest insurance premiums. Such effectively perfect standing will also reflect the type of financial responsibility that opens doors to employment opportunities and apartment options rather than limiting and forcing your hand.
Now that you know perfect credit is indeed attainable and have a sense of the spoils that accompany it, it’s time to talk about how to get there. There’s no specific road map to a score in the 800s, but there are several steps you can take to help your chances of getting there.
1. Maximize the Inflow of Positive Information
The fundamental task at hand is to inundate your credit reports with as much positive information as possible, from various sources if you can. That doesn’t mean you should go crazy with credit applications or borrow money for something you can afford in cash. Too many credit inquiries in a short time is detrimental to your credit standing, as is unnecessary debt, which also takes a toll on your overall financial health.
Rather, one relatively simple way to foster this positive-information overload is to gradually acquire a handful of no-annual-fee credit cards over the years, which you either pay off in full every month or refrain from using altogether.
2. Maximize Available Credit and Minimize Balances
Here’s a rule of thumb: The more credit you have at your disposal, the better it is for your credit score. You should therefore strive for higher credit lines on existing accounts, in addition to adding new high-limit accounts to the mix over time. Adding to a secured credit card’s security deposit would even help, for example.
Credit-scoring models give considerable weight to credit utilization, which is the ratio between the credit you use and the credit you have available, both across accounts and for each one individually. Increasing your credit limits without actually increasing your spending will help in this regard, as will paying your bill more often. One trick many credit-card users employ is to bring their balance to zero before their monthly due date.
3. Keep Your Report Derogatory-Free
You might consider this tip to be commensurate with telling a student that the key to scoring perfectly on a test is to provide no incorrect answers. However, derogatory marks on your credit record — delinquency, default, collections accounts, court judgments, for example — are so destructive to your chances of a perfect credit score that they must nevertheless be emphasized. Such records won’t come off your credit reports for seven to 10 years, so just keep that in mind the next time you consider blowing off budgeting and other personal-finance fundamentals.
4. Don’t Close Accounts Prematurely
A relatively small yet impactful portion of most credit scores is earmarked for the length of your credit history. Typically, both the average age of your open accounts and the age of the oldest one will be used. That means closing an old account unnecessarily could effectively shorten your track record, thus doing damage to your credit score.
At the end of the day, it’s important to note that you shouldn’t put too much pressure on yourself to achieve credit-score perfection. Merely excellent credit is a wonderful consolation prize, after all. It’s also impossible to overstate the importance of monitoring, learning and adjusting as you navigate the credit-improvement highway. You can get free access to your credit score and report through various services, so start tracking your progress now and get ready for liftoff!
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Is Perfect Credit Possible? Inside the Quest for 850 originally appeared on usnews.com
