While achieving the perfect credit score is elusive, the effort is well worth it

___

Published Date 8/5/2022

Remember those kids in school that maintained a 4.0 GPA and then took AP courses and ended up with an even higher one? Like a 4.5? While there was no doubt about how they did it, most of us were in awe of their commitment to excellence.

Credit scoring might be like a report card, but it’s nothing like your GPA. In fact the perfect credit score is the Bigfoot of the financial world. That mythical and elusive number for the FICO Score is 850. And, for those unaware, FICO Scores range from 300 to 850.

Where there exist a number of Americans with 850 FICO scores, their numbers are understandably small. Entrepreneur’s John Rampton reveals that only 1.6% of all FICO scores currently reach that threshold, which Rampton says may sound dire considering that 11% of people believe that Bigfoot is real.

Any lending professional will tell you that obtaining credit with the best terms and lowest interest rates doesn't require a perfect score. “A score above 700 is considered good in most cases,” says Rampton. “What's more, the ‘exceptional’ range of 800 to 850 doesn't usually make a difference to lenders. A score over 760 usually qualifies you for the best rate. So there is no need to overachieve unless it’s an ego thing or you delight in a ton of snail mail with credit card offers. It’s best to remember that credit scores keep changing. So even if you occupy a 760+ score, it may not always stay there.

For those of you fascinated by how those “elite” members of the 850 Club get there, however, the information may serve valuable if you want to build your credit score. A credit score is a three-digit number that represents the risk lenders take on when lending money. The higher the score, the better chance of approval. But not so fast. There are a number of factors that get keen scrutiny by credit systems — FICO and VantageScore.

It’s commonly understood that you can save a great deal of money in interest as well as fees by maintaining a good credit score throughout your life. Rampton uses the example of how, if/when you take out a personal loan, a high credit score could help you avoid personal loan origination fees. Compare that scenario to having a poor credit score (below 580) or a minimal credit history, and lenders will reject you because you don’t meet their minimum requirements. “In turn, access to cash may be restricted,” says Rampton. “And, the most likely option is a bad credit personal loan or a loan with a co-signer or co-borrower.”

Whether you take them up on them or not, high credit scorers receive some of the best cash-back credit cards out there. All of them require excellent credit scores (700 or higher), and many will tell you that you can qualify for a 21-month interest-free credit card with 0% APR on purchases and balance transfers.

As if these accolades are not enough, another reason to be that good credit student is that insurance premiums are lower. “You may be able to pay a lower monthly premium if your state allows credit-based auto insurance,” says Rampton. And the perks keep on coming. If you’re a renter, the security deposit for an apartment is usually lower as well. Evidently, those with a lower credit risk are also better at keeping up with their insurance premiums.

We’ve made it sound fairly simple here, but there is more than meets the eye. You don't have a single FICO score. Each of the three credit bureaus, Experian, TransUnion, and Equifax, has one calculated just for you, based exclusively on a credit report from a particular credit bureau. “Despite the fact that FICO has 50 different scoring models, your main score is based on the median score from the three credit bureaus, which may differ slightly,” says Rampton. “For instance, if your FICO score is 750 you have scores of 720, 750, and 770. So, it's important to examine your credit reports closely since these three numbers are significantly different.”

You may take pride in being a high income earner, having a hefty savings account, and having dabbled in healthy investments, but they have no bearing on your credit score. Your FICO score is simply a measure of your debt management skills. “A high credit score can be achieved by showing financial institutions that you are always able to repay your loans on time,” says Rampton. “Aside from on-time payments and low credit utilization, perfect scores are also distinguished by two other factors.” Perfect score holders:

Have a greater number of credit cards. An average of 6.4 credit cards are owned by people with perfect credit scores, almost twice the national average of 3.8.
Their credit card debt is less. Perfect credit card scores averaged $3,025 in debt. Nationally, the average salary is $6,445.

Factors that determine your credit score include your payment history (35% of your score). “An individual with perfect credit is likely to have a perfect payment history,” says Rampton. “Their credit reports do not contain any collections, late payments, or other negative information.”

The amounts you owe also figure into your score. Your “utilization rate” refers to the percentage of your credit and loans that are used compared to your total credit limit. Ideally, this should be 30%. “People with scores of 850, however, rarely use their available credit,” says Rampton. “The average credit utilization ratio of their credit cards was 4.1%, according to the same FICO report.” Other watermarks include:

Length of credit history (15%). The longer the better; according to a 2019 FICO report, the average age of perfect score holders’ credit histories was 30 years.
New credit — another 10%. “Those with the highest credit scores don't open new credit accounts, although some do,” says Rampton. “The application process typically involves a hard credit inquiry that can damage any score by one to five points.
Lastly, the credit mix (10%) — which includes credit cards, installment loans, finance company accounts, and/or mortgage loans.

Rampton does not believe in credit score perfection. “There’s no need to obsess over reaching 850. Remember, only 1% of consumers will ever get a perfect credit score. And if they do, their FICO score won't stay high for long, since credit bureaus recalculate it constantly. So, you probably have a better chance of encountering Bigfoot.”

Entrepreneur, Due, Bungalow, TBWS

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.