The perfect credit score may be rare to achieve, but it’s not impossible. Before we jump straight into what it takes to get the perfect credit score, we should take a short moment to cover some basic background information.
There are three major credit bureaus: Equifax, TransUnion, and Experian. Each of these credit bureaus uses the VantageScore modeling system for determining your score. However, each element has a different weight in determining your score. For example, although it will impact both scores, your percentage of credit used will have different impacts on your score in TransUnion than on Experian.
The FICO score is the most commonly used credit scoring model used by lenders. It is not a credit bureau and does not store customer credit information. Rather, FICO uses all the information from your credit report, including scores from all three credit bureaus, to calculate your score. Monitoring your Equifax, TransUnion, and/or Experian credit scores will give you a good idea of where your FICO score will fall.
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Why do I Need a High Credit Score?
Each credit bureau has its own scoring range from low to high. The higher your score, the better your credit. The better the credit, the lower the financial risk.
If you ever plan on borrowing money to buy a house, a new car, go on vacation, consolidate debt, open a credit card, or whatever the case may be, you’re credit will be pulled to determine the financial risk of lending to you.
Credit scores aren’t just for loans. Credit is also used to determine the risk of renting a home or apartment. Potential employers may even pull your credit information. Although they don’t see your score, they can see some of the factors that contribute to it, so if you have a high score, it’s likely that the information that is pulled from potential employers will be positive (such as your payment record).
What is the Perfect Credit Score?
Your FICO and VantageScore will fall somewhere between 300 and 850, with 300 being the lowest score possible. Excellent FICO scores range between 800 and 850, while excellent VantageScores fall between 750 and 850. So, you’re reading your VantageScore as excellent, it doesn’t necessarily mean your FICO score will be.
The highest score you can achieve from VantageScore and FICO is 850. It’s the perfect credit score. The magic number that every bower strives to reach. Having and maintaining a high score means that you’re most likely to qualify for things like loans and credit cards based on your credit and you’ll receive for better loan and credit terms than those with lower scores.
However, it is critical to note that your credit score is not the only qualifying factor. Although your score plays a major role, things like income and debt-to-income-ratios are also used by lenders to determine eligibility.
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What Percentage of Americans Have the Perfect Credit Score?
A report from September 10th, 2019 announced a new high for the American average FICO score, stating that the average U.S. score has reached 706- a significant change since “bottoming out at 686 in Oct. 2009.”
Only 1.2 percent of Americans have achieved the perfect credit score of 850. Although it is the highest you can hope to achieve, the perfect credit score isn’t necessarily a requirement for great credit or loan terms. A good score above 760 will generally provide you a high enough score to qualify for the best terms.
How Can I Reach the Perfect Credit Score?
The 800 plus club is a term to describe those with credit who’s score reach and surpass 800. In other words, it is comprised of people with excellent credit, including those with perfect credit scores. There are a few recurring commonalities among those with excellent scores.
Develop a good credit mix (but only if you’re sure you can afford it!)
Among these commonalities is the existence of debt. According to an article from Business Insider, “those with excellent credit scores have an average of $126,306 in outstanding mortgage debt, $11,162 in auto-loan debt, $4,261 in student loan debt, $2,579 in personal loans, and $392 in unspecified debt…”
Most people with excellent credit have debt, and that’s because you can’t prove that you can manage debt without ever incurring any. You may notice another similarly in this information, and it’s called the credit mix. Obtaining different kinds of debt, or having a good credit mix, shows that you can manage different kinds of credit.
Don’t use too much of your available credit
Although the general consensus is to keep your credit utilization under 30 percent, those with excellent scores keep their utilization to about seven percent.
Start building credit early
Being financially aware and educated will help you develop good financial habits that should lead to better credit management.
- If you aren’t already, start budgeting.
- Keep track of bills
- Pay everything on time
- Know what you can afford
- Start a savings account
- Keep your credit utilization low
You don’t have to reach the perfect credit score for excellent credit and great terms. But it does provide that wow factor and a sense of security for those who have achieved it.