What Is a Perfect Credit Score? It’s easier than you think to get a good credit score. You might be astonished to learn that the average score as of October 2020 was 711. Furthermore, since surpassing 700 for the first time in April 2017, the FICO score has continued to rise.
That isn’t the only surprise, though. Would you think that 22.3 percent of people have a credit score of 800 or higher? The FICO score ranges from 300 to 850. A FICO score of 800 or higher is considered outstanding.
But don’t worry if your score isn’t higher than 800. This is because thesis because the threshold for “excellence” is set lower than 800. However, the figure to beat varies based on the credit score utilized.
Let’s look at the FICO Score 8 and VantageScore 3.0, which are the two most commonly used scores. And if you don’t cut perfection, don’t worry. After explaining the two scores, I’ll give you some pointers on how to improve your score in a short period of time significantly.
What Is a Perfect Credit Score?
This would be much easier to explain if there was only one FICO score. However, since this is a credit card, it must be a little mysterious.
As previously stated, your FICO score might range from 300 to 850. However, lenders also employ industry-specific scores to measure risk in specific instances. In-vehicle loan, for example, the lender may wish to see the applicant’s FICO Auto Score 8, but there are five more score versions available.
Issuers of credit cards occasionally seek FICO Bankcard Scores, which range from 250 to 900. But, as you can see, there is no such thing as a single number that governs them all.
But I’m concentrating on FICO Score 8 because it’s the version that all three credit bureaus use the most. So if you get a high score on this version, you’ll probably get a high score on the FICO Bankcard Score as well.
Here’s how the credit ranges shake out, according to myFICO.com:
- Exceptional: 800+
- Very good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 579 and lower
You could think that a score of at least 800 is required based on the breakdown. Therefore, you must be labelled “extraordinary.” However, you don’t need an 800 FICO score to get the best loan and credit card interest rates.
According to Informa Research, you’re in good health if you have at least a 760 Score. A 30-year fixed mortgage with a low-interest rate of 2.857 percent is available. You get the same rate with an 820 score. Who cares if you’re not technically remarkable in the eyes of FICO? All that counts is that you get the greatest pricing.
FICO is open about the factors that go into calculating your score. The following are the five factors that go into your FICO score:
- Payment history: 35%
- Credit utilization: 30%
- Length of credit history: 15%
- Credit mix: 10%
- New credit: 10%
As you can see, there’s a heavy emphasis on payment history and credit utilization. Of course, most credit score versions also include these two factors in their scores, but they’re weighted differently.
What’s a Great Credit Score?
Even though most lenders utilize FICO ratings, VantageScores have acquired some traction. VantageScore 3.0, for example, uses the same range as FICO scores: 300 to 850.
VantageScore does not provide percentages for the components that go into calculating a score. Instead, it concentrates on how “powerful” a category is.
Here’s how it works:
- Credit usage, balance and available credit: extremely influential
- Credit mix and experience: highly influential
- Payment history: moderately influential
- New accounts: less influential
- Credit history age: less influential
However, a VantageScore of 750 isn’t the same as a FICO score of 750 because the components aren’t evaluated equally. So, when it comes to VantageScore, make sure it’s on the rise and in the excellent range (750-850). However, if you have access to a FICO score, you can utilize it to see if you qualify for the best rates.
Why an Excellent Credit Score Matters
You can save money if you have a good credit score. For example, remember how a 760 FICO score earns you a max rate of 2.857 percent on a $300,000 30-year fixed mortgage? This equates to a $1,242 monthly principal and interest payment.
Let’s look at how much you’d have to pay each month if your FICO score was only 630. Your current interest rate is 4.446 percent, with a monthly payment of $1,510 on a $300,000 30-year fixed mortgage. What is the difference in payment after a year? During the first year of your loan, you pay $3,216 extra. You’ve paid an additional $32,160 after ten years. The difference between a below-average and a fantastic score is mind-boggling.
You’ll be eligible for the best credit cards and lower insurance rates, in addition to lower-cost loans. In an emergency, such as COVID-19, having a good credit score is important since it can help you receive a less expensive loan.
Improving Your Credit Score
A FICO score is calculated using six months of reported account data. You can get a VantageScore if you have at least one month’s worth of credit activity during the last 24 months.
You don’t get to pick which score a lender uses, but you do have the authority to adopt credit behaviours that will help you improve your score, regardless of the kind of version. To improve your credit score, pay attention to the following habits.
Maintain a stellar payment history.
Set up a realistic budget and pay all of your bills on time. I’m talking about every single bill, not just your credit card bill. Great payment history is a pathway to great credit.
Watch your credit utilization ratio.
You have a credit utilization ratio, which is the amount of credit you’ve used compared with the amount of credit you have available. So keep your credit card balances under 30% actually, 10%, if you can – and you’ll see an improvement in your score.
Stay out of debt.
Start tracking your spending, so you are always aware of your credit card balance. Once you are using several credit cards, having a system in place is essential. If you don’t know where every dollar is going, you will probably end up in debt.
Stop obsessing about your score.
Just practice the habits listed here, and your score will improve. But do chill out about the exact number. Your credit score will change as new information is reported to the credit bureaus. So be patient, and responsible credit use will fix your score.
And remember, you don’t need a perfect credit score. But, get your score into the excellent credit category, and you’ll get the best deals on interest rates.