Do you really need an 850 credit score to get the best rates?
Most people assume that in order to get the best treatment from lenders, you need to have perfect credit. Across both of the most common credit scoring brands, FICO and VantageScore, that highest score is 850 out of the now-standard range of 300 to 850.
But the truth is that while itâ€™s nice to boast that youâ€™ve maxed out your credit score, itâ€™s almost impossible to achieve the magical 850. Itâ€™s also entirely unnecessary. There is no lender or credit product that requires you to have a credit score of 850 in order to be approved. Â There is no lender or credit product that requires you to have a credit score of 850 in order to earn the best terms. In fact, your credit scores can be 90 to 130 points off the maximum and still result in your getting approved for the best deals from mainstream lenders.
To put it bluntly, 850 doesnâ€™t buy you anything but bragging rights.
Case in point, according to Informa Research, which tracks interest rates by credit scores on a daily basis, the lowest rates offered on various mortgage related loans are being offered to people with scores at or higher than 760.Â And, the lowest rates offered on various auto loans are being offered to people with scores at or higher than 720.
The quest for a perfect 850 is often given different fictitious monikers like â€śTriple-A Creditâ€ť or â€śA+ Creditâ€ť, when in reality there is no such designation in the world of consumer credit scoring. Â Your credit â€śratingâ€ť is the number, whether itâ€™s an 850 or a 525.
Earning the ever-elusive 850 credit score requires that you have a statistically perfect credit report that indicates you are completely void of any sort of credit risk. But again, this is unnecessary and you will do just fine with 760 or better, which is a much easier target to hit.
A score of 760 doesnâ€™t require perfection. You can even have derogatory entries (like a missed payment) and still get there. It just requires that these negative marks are older and limited. You can even have a balance on your credit card and still score at or above 760. Your best bet is to use 10% or less of your cardâ€™s credit limits. Â That means no more than a $1,000 balance for every $10,000 in credit limits across all of your cards.
The other targets are harder to hit because theyâ€™re not entirely in your control. Â For example, the older your credit history is the better youâ€™re going to score. Since you canâ€™t exactly control time, this will be one of those areas where youâ€™ll do better organically as time passes.
Account diversity is also a tough one to control. People will score better if theyâ€™ve got a record of managing different types of accounts, such as credit cards, student loans, auto loans, and mortgages. Nobody will (or should) go out and buy a car or a house just to benefit their credit scores. This is one of the metrics where you will improve as time passes and you build a history of auto loans and mortgages.
If all of this seems too complicated then letâ€™s make it really simple. If you pay all of your bills on time all the time, apply for credit only when you actually need it and use credit cards sparingly then youâ€™re going to earn and maintain great credit scores. It would be impossible for you not to do so.
If you are still obsessed with credit score perfection then there are some milestones that are going to need to be met and maintained.
A perfect payment history. Your credit report is going to have to be void of any negative information, and there are no exceptions. If youâ€™ve got derogatory entries like late payments, liens, judgments, collections, defaults and the like then an 850 is not in the cards for you.
A low utilization rate. Utilization plays a big role in your score and it can be a little confusing. Essentially, credit scoring models look at your total statement balances across all your cards and compare it to your total available credit limit. They donâ€™t even give you bonus points if you pay that balance off in full each month. They simply look at how much your balance comes out to with each billing cycle. The lower your total statement balances are, the better off you are score-wise. To get the perfect 850, donâ€™t even think about carrying a balance on your cards. You need to be at or close to zero percent.
Youâ€™ve shown a long history of good behavior. If you apply for credit too often, have limited credit scoreÂ information or have a young credit report then youâ€™re not going to max out your score. You canâ€™t open a bunch of accounts in a short period of time without hurting your scores. It reduces the average age of your credit and it also means a hard credit inquiry on your account, which can also ding your score. Again, this is no big deal if youâ€™re shooting for the ideal credit score of 760 (or in the neighborhood of that) but it can certainly hurt you on your path to 850.
Minimum Credit Score
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