The perfect credit score is 850, but how many people actually have that? Is it even achievable, or is it something imaginary that the credit industry holds over consumers’ heads?
Let’s take a look at the seemingly elusive 850 credit score and what it can mean for securing the best interest rates on the best credit products. It’s also a good idea to understand what goes into obtaining the highest scores, and the solid credit practices consumers can take part in today to put themselves in the strongest position when opening new lines of credit.
How many people actually have an 850?
Americans with a perfect 850 credit score actually do exist — 1.5 percent of borrowing consumers in the U.S. have an 850 credit score. About 20 percent of credit scores are in the 800–850 range.
Scores above 800 are typically classified as “exceptional” — but it’s important to note that lenders do not significantly distinguish between scores in the 800 to 850 range. In many situations, a score above 760 will qualify borrowers for the most-attractive interest rates. Thus, while achieving an excellent credit score is a goal to which many aspire, getting to 850 is not necessary.
It’s also important to keep in mind that credit scores are constantly in flux, so even those who do reach 850 don’t always stay there. As consumers buy new cars and homes, give credit cards to children, and the like, their credit scores can change.
Benefits of a high credit score
“Easy” credit is not the only benefit of a high credit score. The highest credit scores can lead to these advantages:
- Perhaps most significantly, mortgage rates will be lower. This can save borrowers tens of thousands of dollars over the life of the loan, perhaps even $100,000 or more.
- The highest credit scores can mean access to credit cards from airlines, hotels and other travel companies offering the most-generous of rewards programs. This can mean getting free nights in five-star hotels, free checked bags, automatic upgrades or extra insurance on rental cars, or cashback.
- High credit scores give consumers more power. There will be less hassle and negotiation when applying for loans of any size for any situation. This can mean less time sitting with the branch manager or worrying about whether you could have gotten a better rate.
- Credit scores are also used in background checks. A new employer will add your credit score to your HR file, a good one can reduce anxiety when applying for or starting a new job. You may also be more confident when applying for any employer-sponsored loans or credit programs.
How to take control of your future credit score
It is generally agreed that certain steps can impact your score for the better:
- Paying off your credit card balance every month.
- Correcting errors in your credit report.
- Having a mix of credit: installment loans, which have fixed monthly payments (mortgages, auto loans) and revolving accounts, which may have fluctuating payments (credit cards).
- Keeping your credit usage (how much of your available credit you use on a monthly basis) to below 20 percent — some advise even keeping it below 10 percent.
- Paying your bills on time; even one late payment will keep you from a perfect credit score for at least seven years.
- Not applying for new credit; new credit inquiries stay on a credit report for two years. (You can, however, request an increase to your credit limits for your existing lines of credit.)
- Waiting to apply for new credit: A long credit history accounts for 15 percent of your score. (Those in the 800+ club have credit histories of 25 years or longer.)
Some outside factors can influence a borrower’s credit score. For example, the state of the economy can often influence whether people are financially able to avoid credit score pitfalls from year to year.
Credit simulations and credit modeling
Of course, the ability to view, understand and manage your credit is key to obtaining a higher score and putting yourself in the strongest position when applying for loans. Obtaining your credit report once per year may not be enough.
Instead, borrowers should consider using a research and education tool, such as ScoreMaster, that provides simulations of credit scores based on hypothetical payments and spending decisions. More insightful than a static credit report, such a tool can help individuals understand the dynamics of credit and the impact of large purchasing decisions on their overall scores.
*Legal Disclaimer – ScoreMaster is a patent-pending educational feature simulating credit utilization’s effect on credit scores via payments or spending. Your results may vary and are not guaranteed.