When looking at their credit rating, people may be wondering whether or not they could increase their credit score to the highest score possible. In the financial world, a credit score of 850 is the highest credit score possible—and only about 1% of Americans have that rating. For many people, reaching 850 may be a goal that they have for themselves or for their household. Getting the highest credit score of 850 may be possible, but it is extremely difficult to obtain—not to mention unnecessary. There are many reasons for this—from the way that credit scores are built to the factors that impact them.
The Myth of a Perfect Credit Score: Helping You Get the Most from Lenders
When it comes to lenders that check credit—having a credit score of 850 is not necessary for eligibility. In fact, most lenders consider a credit score of 760 or higher perfect. This means that having the perfect credit score will get you similar interest rates to having a very high score. In addition, lenders don’t market their products for the top 1% of credit scores. So, having a perfect credit score is actually not super beneficial in the lending world.
The Myth of Having Complete Control of Credit Score
Although there are actions a person can take to improve their credit score, the truth is that there are things that cannot be changed and factors that cannot be controlled. An example of this would be the age of an account and the diversity of the types of credit that a person has. Getting a perfect credit score takes a lot of time and requires a person to reach certain financial goals in their life.
How to Get a High—Maybe Even the Highest—Credit Score
There are ways that credit can be improved or a high score achieved. There are things that people with higher credit scores, and even perfect credit scores do. Here are few of those steps to incorporate or learn:
- Making Payments on Time: Making payments on time is an important part of maintaining or improving credit. Those who have a perfect credit score have a perfect, or extremely close to perfect, payment history.
- Age of Accounts: Believe it or not, the age of accounts does impact credit history. The age of a credit account shows how much experience a person has handling credit. The average age of accounts for those with a perfect credit is about nine years old.
- The Credit to Debt Ratio: This can have a large impact on a person’s credit score. The credit to debt ratio will let lenders know how much credit a person has available and how much debt they have. It is important to make sure that even after paying off debt, those accounts are kept open. Those with perfect credit scores use a range from 1% to 10% of their available credit.
- Diversity of Credit: This can be a hard factor to get right, but it is an important one to consider. The 1% of perfect credit score holders have at least four different types of credit accounts and around twenty accounts.
- Hard vs. Soft Credit Inquiries: When a person looks up their credit score, it can show up on their credit report. There are times when it is necessary to look into a credit report—such as inquiries. When it comes to inquiries there are two types:
- Hard Inquiries: These inquiries are done by credit lenders when a person is looking to get additional forms of credit. This type of inquiry will impact a credit score.
- Soft Inquiries: These inquiries are done for background checks or when you are checking your credit score. This has no impact on a credit score.
For those with perfect credit, less than three hard credit report inquiries are done every two years.
- Collection Accounts: Having a collection agency collect debt can have a huge negative impact on credit (these stay on a credit report for seven years). The 1% of borrowers with perfect credit and those with a high credit score do not have a single credit collection agency on their accounts.
- The Income to Debt Ratio: The income to debt ratio represents how much a person makes and how much debt they have. Those with a high or perfect credit score have a .28 debt to credit ratio.
When it comes to having the highest credit score—it is possible to achieve but it can be very difficult. There are a few easy things that any person can do to improve their credit score. Additionally, there are a few myths that exist in the credit world surrounding the perfect credit score of 850. It can be helpful to know about these myths and how they impact lending.