It seems logical: Achieving a perfect 850 credit score will get you the best interest rates on everything from a mortgage to a car loan. But, did you know that those with scores nearly 100 points or so lower will enjoy the very same perks?
“Generally speaking, a 760 will get you the best possible interest rates on any type of loan,” says Matt Frankel, Certified Financial Planner at The Ascent, a personal finance site. “Once you’re above 800 or so, there’s no real benefit — other than bragging rights — of having an even higher score.”
That’s great news because perfect credit can be particularly elusive. Plus, scores fluctuate throughout the month, so even if you do hit 850, it could be a once-in-a-lifetime achievement. In fact, less than 1.5 percent of people have an 850 score, according to FICO, a widely used credit scoring model. But, a report from credit bureau Experian found that more than one in five people have credit scores between 781 and 850, which means “exceptional credit” is certainly within reach.
Here, experts share how you can get near-perfect credit so that you qualify for the best rates, and they also dish on some lesser-known factors that could be dinging your credit.
First, Here’s the Anatomy of Your Credit Score
Understanding how your credit score is calculated can help you keep your own score in tip-top shape.
In a nutshell, if you want exceptional credit, you’ll need to consider several credit factors, explains Riley Adams, a licensed CPA who works as a Senior Financial Analyst for Google in the San Francisco Bay area and runs a personal finance site, Young and the Invested. You need to have a long history of on-time payments, have a diverse range of lines of credit, use your credit lines sparingly, have your accounts opened for extended periods of time, and limit the number of inquiries against your credit report, Adams says.
To dig into this some more, here’s exactly how FICO uses your credit data to calculate your score.
- Payment history (35 percent): The biggest factor affecting your score is on-time payments of credit accounts, past and present.
- Amounts owed (30 percent): Keep the rule of 30 in mind here! Not only do “amounts owed” make up 30 percent of your score, but creditors also want to make sure you’re not over-extending yourself and it’s best if the credit utilization on each of your credit cards is also kept under 30 percent.
- Length of credit history (15 percent): The age of your accounts is important, too. A seasoned credit history, with a track record of on-time payments, will help boost your score.
- Credit mix (10 percent): Creditors like to see how you manage different types of credit, including revolving credit like a credit card and installment loans like your student loans or mortgage payment.
- New credit (10 percent): Opening several credit accounts in a short amount of time can signal risk, especially if you don’t have a long, established credit history.
How to Achieve Exceptional Credit
While a 760 is really the best score you’ll ever need, a perk of having a score in the 800s is that you’ll have a nice cushion, Frankel points out.
“For example, applying for new credit can cause your score to drop by a few points, but if your credit score is in the 800s you can absorb the hit and still have a top-tier score,” he explains.
So, while you know that paying your bills on time each and every month and not maxing out your credit cards will help you build credit, here are five lesser-known credit-boosting tips.
- Pay down your credit card more than once a month: The date that your creditor reports to the credit bureaus could be different than your credit card’s due date. So, say you used your credit card to purchase new living room furniture and you pay off your credit card balance on its due date. It’s possible that your balance could have been reported to the credit bureaus earlier in the month, and before you paid down your balance, making it appear that your credit utilization is more than 30 percent. Not fair, right? But, you can pay your credit card balances more than once a month. “This will help keep your utilization down and reduce the risk that you’ll miss a payment,” says Korrena Bailie, senior editor of Wirecutter, a New York Times Company.
- Set up auto-payments: To get a perfect credit score, you don’t have much wiggle room and you need a perfect payment history spanning years. “The easiest way to make sure that no bills fall through the cracks is to set up automatic payments so that your payment history remains perfect without you having to think about it,” says Logan Allec, Certified Public Accountant who runs the finance site Money Done Right. He recommends tools like Personal Capital or Mint to help manage your bill payment schedule.
- Don’t open too many credit cards: “Many higher income people make the mistake of opening too many credit cards, and they have several hard credit inquiries that affect their credit scores,” explains Patti Hughes, a Certified Financial Planner and the owner of Lake Life Wealth Advisory Group in Chicago. It’s important to limit the hard inquiries on your credit, since these affect your credit score for two years, she says. Hard inquiries include those done by banks or other institutions running your credit for auto loans, mortgages, or credit cards, Hughes says. Checking your own credit won’t affect your score.
- Audit your credit report. By law, you’re entitled to a free credit report every year. Your annual credit report won’t contain your actual credit scores, but it does have lots of other important information such as any outstanding debts that could be affecting your score and contact information for your creditors. Give your credit report a good look because according to the Federal Trade Commission, one in five people have mistakes on their reports.
- Closing your credit cards: Since credit history makes up 15 percent of your score, it’s important to keep your older accounts open. Plus, closing a card out could affect your credit utilization. “One common mistake is closing unused credit cards, which can have the undesired effect of raising your debts as a percentage of your available credit,” Frankel says. If you have an older credit card that doesn’t have the best interest rate, you could keep it active by charging a small amount each month (say, your Netflix bill) and paying it off.
The takeaway here: Relax, you don’t need perfect credit! But, understanding what causes fluctuations in your credit, and adopting some good financial habits, can help land you in the “exceptional” category. That way, you’ll still reap the same rewards as those in the 850 club.
Brittany Anas is a freelance writer who specializes in health, fitness, and travel writing. She also contributes to Men’s Journal, Women’s Health, Trip Savvy, Simplemost, Orbitz, and Eat This, Not That! She spent a decade working at daily newspapers, including The Denver Post and the Daily Camera in Boulder, Colorado, and she is a former federal background investigator. In her free time, Brittany enjoys hiking with her gremlin-pot belly pig mix that the rescue described as a “Boston Terrier” and coaching youth basketball. She also works with domestic abuse survivors, helping them regain financial stability through career coaching. Follower her on Twitter and Instagram.