A high credit score will make it easier to qualify for mortgages and car loans, start a business, and, in some cases, secure a job.
More importantly, a good credit score reflects a secure financial standing, meaning you have fewer money problems to worry about.
Striving for a good credit score is one of the most important financial goals to have. But what exactly is a “good” score – and is there a perfect one?
What is a Perfect Credit Score?
Credit scores are numbers that indicate your credit history health. Before you can determine if you have a perfect credit score or how to get there, you first have to know what credit score model you’re using. There are two major types of credit score modules: VantageScores and FICO Scores.
Both scores use a range from 300-850 to assign credit scores. That means that no matter what module you use, the perfect credit score is 850.
You don’t need a perfect credit score to receive the best terms from lenders, and you don’t need a perfect score to claim that you are financially free.
These scores are based on credit reports and can change throughout your life. Your credit score can be considered:
Every lending company has a different scoring system, meaning a “good” credit score for one may not have the same number for another. According to the FICO model, a credit score of 750 or higher is considered “excellent,” and a credit score of 680-739 is considered “good.” For VantageScores, a score of 700 or above is considered good, and a score of 800 or more is excellent.
How to Get the Highest Credit Score Possible
When you apply for a new line of credit, lenders consider several key aspects of your credit history, including:
- On-time payments
- How much you owe
- How many lines of credit you have
- How recently you’ve taken out new credit
If you’re looking to achieve the highest credit score possible, you should first consider all of the factors that make up your score. Then, follow these proactive steps to push you to get to the top of the scale.
Pay On Time
Your payment history makes up 35% of your overall credit score. To be perfect, you have to pay on time.
To avoid missing deadlines, set monthly reminders or sign up for autopayments. If you find that another payment date would work better for your financial flow, talk with your creditor about adjusting your payment schedule.
Track Your Credit Utilization Ratio
Credit utilization is the ratio of how much credit you have available and how much you have spent. As a general rule, it’s best to have a credit utilization of 30% or lower.
However, having a ratio of 0 is not a sign of perfect credit history. Having a ratio of 0 indicates that you are not active on your credit. Without credit activity, lenders are unable to determine whether or not you are responsible with your credit.
Credit experts believe that the ideal credit ratio is approximately 10%. This ratio will have the best results on your credit score.
To improve your credit utilization, you can:
- Make big monthly purchases on different credit cards
- Ask your credit card provider for an increased credit limit
- Make payments twice a month.
After paying off credit cards, be sure to leave the account open. Using your card for small purchases like groceries and gas and paying it off every month can be an excellent way to show that you can responsibly manage credit.
In addition to making payments on time, you should also aim to pay ahead. This means paying more than your monthly minimum payments or paying more than once a month.
Making extra payments will help keep you on top of your debt and pay it off faster. It will also help keep your credit utilization rate at a manageable level.
However, it is important to note that paying ahead or making extra payments does not count toward your monthly payments. Even if you pay twice in March, you still have a minimum amount due in April.
Pay Down Your Highest Balances
While making all of your payments on time is vital to reaching the perfect credit score, you should focus all of your excess funds towards your accounts with the highest outstanding balance.
Just like paying ahead, lowering your biggest debts will have a huge impact on your credit utilization score. The faster you pay off these debts, the less you will have to pay in interest fees.
Be Cautious When Opening Applying For New Credit
Part of having a perfect score is leveraging your borrowing and spending habits. One way to show that you have an active and balanced credit history is to take out new cards or loans.
When you apply for a loan or a credit card, a hard inquiry is made on your credit report. This inquiry can have a temporary negative effect on your history and could lower your score by 5-10 points.
However, both credit score modules have a grace period that counts all similar credit pulls as one. That means that shopping for new loans or credit cards will not have as drastic of an outcome if you shop smart. The VantageScores grace period lasts 14 days, and the FICO scores period lasts for 45 days.
While you should avoid making too many hard inquiries on your credit, applying for more credit can positively impact your credit score over time. Be thoughtful about the credit lines you open and always keep old accounts open to help balance your credit utilization ratio.
Monitor Your Credit History
The worst thing that could keep you from reaching a perfect credit score is identity theft or credit report errors. In the blink of an eye, all of your hard work and strategic credit use could be flushed away by the careless actions of a thief or recording accident.
Fortunately, there are many ways to check your credit score for free online. Checking online is perfect if you’re on the verge of a big purchase like a home or car. Otherwise, you should consider checking your credit monthly or semiannually to avoid having to make any unnecessary hard inquiries.
Be Aware of the Different Types of Credit
Although it only makes up only 10% of your credit score, having a diverse credit mix can give your credit score a leg up.
Credit mix is the variety of credit types that make up your credit history. There are several different types of credit lines you can have, including:
- Bank credit cards
- Installment loans
- Auto loans
- Student loans
Despite its relatively small role, having more than one line of credit will really give you the push you need to reach that perfect score. Remember to only take out credit that you can pay on time and practice proper credit utilization habits.
Consider Negotiation or Settlement
If you’re on the lower spectrum of the credit scale and working your way towards the top, you may be struggling with:
- Paying multiple monthly payments
- Making payments on time
- Paying high interest rates
- Facing excessive late fees
- Affording your debts and considering bankruptcy
To get back on track, you might consider debt settlement. This process involves you – or a third party company that specializes in debt settlements – to negotiate your debt with your lenders into something you can afford to pay.
Rather than making multiple monthly payments, a debt settlement would allow you to pay your lenders a single lump sum. This sum would be less than the amount you would pay over time on a payment plan with added interest.
If your lender is open to negotiation, this method can get you out of debt and lower your credit utilization ratio quickly. Talk to one of our debt coaches to find out if your situation would benefit from debt settlement.
Get Expert Advice
While these guidelines are strong building blocks for improving your credit score, you may benefit from one-on-one financial advice.
If you’re in need of professional guidance on improving your credit score, call us today to speak with a credit coach. Our experts can help you make take the steps you need to get your score as close to perfect as possible.