Is there such a thing as a perfect credit score?
The general consensus among financial experts is there "can" be a perfect credit score, although many of them don't call it that.
By and large, a Fair Isaac Corporation (FICO) credit score of 850 is the "highest" possible credit score, and that certainly fits in the realm of "perfect." (the lowest possible FICO score is 300.)
That credit score is based on a formula created by and developed by FICO, and determined by the three national credit bureaus (Equifax (EFX) , Experian (EXPGY) and TransUnion (TRU) ), who also hold and store personal credit scores.
The 850-credit score apex wasn't always the gold standard for top credit scores.
The three credit scoring firms previously used a VantageScore credit calculation model that went as high as 990, but that model was adjusted to 850.
Meanwhile, lending and financial institutions like banks, credit unions and large insurance firms often rely on their own proprietary credit scoring systems, which differ from what companies like Experian and TransUnion are using.
Also, a credit score cannot be perfect, as any time an individual applies for credit, that credit score is dinged by a few points (applying for credit means you could represent a risk to creditors, thus the loss of a few points on your credit score when you apply for credit.)
Consequently, in technical terms, the 850 "perfect credit" score really doesn't exist, although it does act as a great target for financial consumers and is considered by the three major scoring firms to be the highest credit score possible.
Who Falls Into the Different Credit Score Categories?
Unsurprisingly, few individuals have achieved the Holy Grail-like credit score of 850.
Data shows that of the 200 million U.S. adults with credit scores, only 1.4% (approximately three million) have a perfect credit score. The average U.S. credit score is 700, according to FICO, while the number of Americans with credit scores over 800 number stands at 41 million in 2018 - the highest number since 2010.
The vast majority of U.S. adults have a credit score in the 550-to-639 range, which is deemed as "fair" according to credit scoring standards, according to data from TransUnion.
From a percentage standpoint, here's how Credit Sesame breaks down Americans and their credit scores, calculated from seven million site users:
- A credit score of 499 and lower = 8% of Americans.
- A credit score of 500 to 549 = 14% of Americans.
- A credit score of 550 to 639 = 33% of Americans.
- A credit score of 640 to 719 = 33% of Americans.
- A credit score of 720 to 850 = 19% of Americans.
How Can You Steer Your Credit Score Toward 850?
Is it realistic to believe you can boost your credit score all the way up to 850?
Why not? After all, three million Americans have climbed the Mount Everest of credit score figures. If they can pull it off, why can't you do the same? At the very least, you can take the steps to improve your score.
Actually, you can - if you apply these six steps with all diligence and persistence. If you can earn an "excellent" grade in each of the six categories, you can hit the magical 850 credit score mark.
Six Factors That Impact Your Credit Score
Your credit score at any one of the three major credit reporting services (Experian, TransUnion and Equifax) depends on six key factors:
1. Credit Card Utilization
This is the ratio of your card balance to your card spending limit - it's a big factor in credit scoring. Percentage-wise, utilization rate comprises about 30% of your total credit score. Credit scoring firms keep a sharp eye on how much credit card debt you've accumulated. Any credit card that bumps up against the allowable spending limit has no shot at an 850-credit score. Conversely, the lower your credit score utilization ratio, the better your credit score will be. To aim for an 850-credit score, keep your utilization rate below 5%. That means if you have a credit card with a $5,000 spending limit, your standing debt balance should never be above $250.
2. Payment History
Your payment history is another high impact factor in credit scoring calculations.
- Any negative remarks or reports from creditors. You don't want derogatory remarks against you from creditors - it's another "high" factor in credit scoring. Four or more negative remarks can kill a credit score, while zero remarks will help you get to 850. Combined, payment history and creditor remarks comprise about 35% of your total credit score.
- Age/length of credit history. Any good credit history over nine years is a highly-positive factor in credit scoring. Any credit history under two years is a negative factor. Age of credit account comprises about 15% of your total credit score.
- Total accounts. Total accounts aren't a huge deal with credit scoring agencies, but the more "good" accounts you have - open and closed - will help your credit score. Total accounts comprise 10% of your total credit score.
- Credit inquiries. Credit inquiries are another low-impact credit scoring factor. Credit inquiries comprise about 10% of your credit score.
3. Don't Close Any Credit Accounts
This may appear detrimental when you're talking about opening many credit accounts, but to get to an 850 credit score, the more credit accounts you open, the better. Credit reporting agencies view an abundance of open credit accounts as a good thing - creditors keep approving you for money, loans and credit cards, because you're a great credit risk. That, however, doesn't mean you need to spend any of that hard-earned credit. Instead, keep all of those credit accounts wide open, but don't use them. Cut those credit cards up if you like. That way, you still have all of that available credit, which credit card reporting companies really like to see.
4. Never Miss a Bill Payment
To get to the magic 850 mark, you'll need to have a glistening history of never missing a credit payment deadline. Yes, that's easier said than done, but if you can build a perfect credit payment history of five years (great) or 10 years (that will definitely get you to 850), you're in the "credit conquering" club. That's especially the case with student loans, which of are left unpaid, or paid late, stay on your credit report forever. Simply stated, if you miss a student loan payment, you're an unlikely candidate to earn an 850 credit score.
5. Watch Your Credit Report and Resolve All Disputes
Creditors make mistakes, intentional and unintentional - all the time when reporting credit and payment history. It's up to you to keep track of your credit report, although online credit reporting sites like Credit Karma and Experian can be a good help. Any error that isn't resolved, and goes against you, will keep you short of an 850-credit score. Start by getting a free copy of your credit report either through annualcreditreport.com or from the credit reporting firms directly. Remember, the idea is to keep derogatory reports off your credit report to get to 850. If you see anything fishy, the solution may be to freeze your account.
6. Take the Long View
People who have earned an 850 credit score have been building to that level for a long period of time. Data shows that the average person with an 850 credit score has been at it for 30 years. The problem with aiming for an 850 credit score with only a few years of credit is that credit scoring agencies won't let you record an 850 credit score unless you have at least 10 years of perfect-payment credit history.
Don't Worry if You Fall Short
Don't put too much stock into getting to the magical (but not mythical) 850 credit score.
Even getting close - say to an 800 score is a major accomplishment - will give you access to greater credit opportunities and better deals on financing and interest rates. Take a look at some different ways to build credit if you want some additional tips.
That said, there's certainly much to be said for shooting for the starters, and that's what you'll be doing when you aim for an 850 credit score.
Keep on trying, and know that in the process, you'll already be a winner as you'll learn and adopt the types of financial habits that creditors love, and that will keep debt, overspending and late fees largely out of your life - for as long as you're on the 850 credit score trail.