Credit scores are three-digit numbers used by lending institutions to determine your creditworthiness. They range between 300 and 850, with an average credit score lying between 680 and 700. The Fair Isaac Corporation (FICO), a software company in Minneapolis, created the formula for determining these scores.
The perfect credit score, therefore, is 850. But, how difficult is it to attain that perfection? Some people are of the view that the target is elusive, while others see it as merely a fiscal challenge in their quest to obtain easier credit and loans at the best possible rates.
But according to recently published data, the reality is that a very small percentage of people actually find credit score perfection. A new study revealed the interesting fact that of those who were able to snag the highest credit score, the average age was 61 years. The conclusion, then, is that it will take someone many, many years to achieve a perfect credit score.
In reality, having a perfect credit score is seen as not really necessary, since there is little difference between a 760 and an 850 score, as credit scoring is only one of many factors considered by major banks and lending institutions, that also take into consideration your income, assets and type of employment, when making loan decisions.
Having a good or excellent credit score, many believe, is a good enough money saving technique. Unless you have the capacity to use cash to make large purchases, obtaining credit for items such as your first home or car sometimes can be a daunting prospect. It is important, therefore, to maintain an excellent or good credit score range so that should the occasion ever arise you will find it useful.
Nevertheless, FICO has released information relative to the factors used to determine the perfect credit score. These factors include your payment history, the balances on your lines of credit and loans, your credit history’s length, the quantum of new credit you have sought, and the types of accounts you have held. The company also informs you what percentage of your score is attributed to each factor.
In your quest for achieving the perfect credit score, it is instructive to note that thoughts about canceling your credit accounts will cause damage to your score, while attempts to shift your balances around or leave your credit accounts idle for a while will not help.
The focus, then, should be on inculcating the habits that can actually assist you to achieve that sought-after perfect credit score.
Always be prompt in paying bills, as 35 per cent of your score’s points are earned from having a track record of paying bills on time, and you will need account reports for the past seven years. As well, there should be no negative record of your fiscal responsibility in the last 10 years.
Use your credit cards every month. Not using a credit card means you are cheating yourself of getting positive reports. But remember not to spend more than 10 per cent of your credit limit.
To achieve that perfect 850 credit score you must show stability. So it is imperative that all your credit and loan accounts have been in operation for ten years or more. This element takes into consideration the age of the account that is oldest, as well as the average age of your combined accounts. So it is wise to keep your accounts active as long as possible and avoid creating new ones or canceling old ones.
You must mix it up in order to qualify for a perfect credit score. That means having at least one credit card in addition to a home loan, car loan, and student loan on your credit report. Each account needs to be active, as this diversity signifies your credit responsibility.
If you have already accumulated the mix, then avoid applying for credit, as any inquiry from an application will do harm to your credit score for six months or more.
As you realize, achieving the perfect credit score would take time and a lot of planning, but can be reached. With that perfect credit score, you will be able to access premium cards from credit card companies, including those without annual fees, interest rates at zero percent and credit limits that are higher.
Lending agencies will ask less questions about your credit stability, and loan approvals will be expedited faster. When conducting a background check for employment, prospective employers will recognize that you are an individual who is responsible and reliable with a stable lifestyle.
If you currently are unaware of what your FICO credit score is, you need to start making inquiries and begin working to improve the number. Credit scores are important in getting approved for credit. Why not up the ante on how much credit you may be eligible to receive by striving to attain that perfect credit score.
