According to Fair Isaac Corp., the company behind the FICO scoring model, just under 3 million Americans have a perfect credit score of 850. That’s 1.4% of the 200 million U.S. consumers who have FICO credit scores.
FICO scores range from 300 to 850, but there may be some variation in the score classifications among different lenders making a credit decision about you. While perfection is something to strive for, keeping your score as high as possible will save you money in interest costs over your lifetime. Generally, a score in the very high 700s or above will get you the best credit terms. Good credit habits, a solid credit score, and an unblemished credit history can be integral to building wealth.
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The three major credit bureaus
There are a number of credit bureaus, but three major credit bureaus dominate the market: Equifax, Experian, and TransUnion. These are publicly traded companies and not government organizations.
Your score from each credit bureau might vary based on who reports your credit information and when they report it. It's up to you to ensure that your information is accurate and up to date.
How to improve your credit score
Some factors related to credit scoring are beyond your control. For example, it is difficult for a 20-year old to have a long credit history. Other factors can be mitigated by making informed choices about how you manage your credit. If you are within striking range of 850 and would like the bragging rights (any score over 800 is considered exceptional by lenders), or just wish to improve your credit score overall, here are tips to do that:
- Always pay your bills on time. This factor alone accounts for 35% of your credit score. You will want a spotless record of on-time payments going back at least seven years for mortgage payments, credit card bills, student loan payments, and others.
- Avoid negative situations like bankruptcy, any sort of lien including tax liens, charge-offs of credit card bills, or having your debts sent to collection. These events stay on your credit history for 10 years and will prevent you from attaining a perfect credit score during that time.
- Keep your credit utilization under control. This is the percentage of your available credit that is being used. Credit utilization comprises about 30% of your FICO score and 23% of your VantageScore credit score. Credit utilization of 30% or less is considered optimal. Credit utilization is calculated both in aggregate across all available credit lines and on each available credit card and credit line.
- Be careful when closing credit card accounts, especially if your credit history is short. Ideally, you will have open accounts with a history of 10 years or longer. This means that closing longstanding accounts, even if you rarely use them, can potentially hurt your score.
- Ensure that you have a good mix of different types of credit. For example, having at least one credit card account open (and active) as well as mortgage, student loans (if applicable), an auto loan, and others shows stability and responsible use of credit. This assumes that your debt load isn't excessive and that you are consistently current on all payments.
- Avoid applying for too much new credit. Multiple credit inquiries Opens in a new window in a short period of time can hurt your score as well. Keep this in mind when you pass a credit card kiosk offering bonus miles to apply, or when a clerk suggests taking 10% off your purchase if you apply for store credit. These casual inquiries can work against you.
Maintaining a high credit score requires you to be diligent about your credit history not just once, but on an ongoing basis. The benefits can save you tens of thousands of dollars over your lifetime via better interest rates and terms on mortgages, auto loans, credit cards, and other types of credit.