When people first discover that the highest possible FICO score is 850, they want to know what it takes to get that high score. Fortunately, a perfect credit score is not required for anything, but it can help. This article will cover exactly what a perfect credit score can do for you, how to get one, and why you don’t need one.
What Does a Perfect Credit Score Do For You?
Having a perfect credit score does not change anything concerning your ability to pay back a loan. Now, this is only compared to an otherwise high credit score. The difference between an 850 score and a 450 is significant.
However, a credit score above 800 is practically the same as a perfect score. In fact, you will see almost no difference in the interest rate, down payment required, or approval rate once your credit score is above that point.
Quite frankly, this makes trying to get a perfect credit score a waste of time. Many people still want to achieve a perfect score for various personal reasons though but it is rare to have a perfect score. Only 1% of the US population has a perfect score at any time, but 15% will have a score over 800.
How Does FICO Determine Your Credit Score?
FICO uses a few different criteria to determine your credit score. These criteria are the following:
- Payment history
- Late payments
- New credit, credit applications, and checking your credit report
- Account balances
- Different types of credit accounts
Those are the five criteria that FICO uses. They have a specific weighting for each criterion that they use to total your score, but that is not publicly available information.
FICO will plug this data into their formula. It will then calculate a credit score between 350 and 850. 350 is the lowest score possible and means that you are extremely likely to default on a loan. This makes you risky for lenders, which means higher interest rates, higher down payments, higher rental deposits, and a whole range of other problems and this is if you can even get approved for a loan. Having a very low credit score makes life more difficult.
On the other hand, a perfect credit score of 850 indicates that you are extremely unlikely to default on a loan. In fact, it means that you are extremely unlikely even to miss a payment. You can expect lower interest rates, lower down payments, lower rental deposits, and less financial scrutiny.
One thing to keep in mind, the credit score is calculated for use by the lender. The only reason the credit score is publicly available, rather than an internal tool, is to encourage people to not default on loans. If a person knows the extent that a default will negatively impact their ability to get another loan, then they will be less likely to default.
How to Get a Perfect Credit Score
Getting a perfect credit score is not as difficult as you would think. It does take a long amount of time and also involves staying financially stable and paying all your bills on time.
The most important factor to get a perfect credit score is always to pay your bills on time. You will not qualify for a perfect credit score if you have a late payment within the past two years. This makes up 35% of your credit score.
Another important factor is not using all your available credit. For instance, if you have $15,000 of available credit, then you should not be using $14,000 of that credit. That is an important factor in the weighting system for the credit score. This is known as your credit utilization, and makes up 30% of your score. FICO suggests keeping your utilization under 30% but lower is better.
Other factors include the types of accounts you have, which includes having both revolving and installment accounts, how long you have had credit for, and not applying for new credit all the time as each hard inquiry can cause a ding to your credit score. Even though all these factors play a part in your credit score, having an 850 isn’t necessary as long as your score is high enough to qualify for new credit and low interest rates.
Why a Perfect Credit Score is Not Necessary
As explained earlier, a perfect credit score is not necessary and has no practical benefits. It is widely accepted that an 800 credit score is treated the same as an 850 credit score. In other words, if a bank sees your 820 credit score, then they will likely approve you for the lowest interest rate loan possible.
Now, this does not mean you will get automatically approved for every loan or credit card. There is more to approval than just a credit score. An 800 or higher credit score simply means that you will not have to deal with getting denied because of your credit score. You will also usually be placed in the lowest interest rate category, be able to qualify for a higher credit limit, and a lower down payment amount (for home loans) on account of your credit score. Again, there are other reasons you may still be denied, such as your income.
Overall, having a perfect 850 FICO score is not needed for anything. The only reason people want a perfect credit score is for some personal satisfaction. People often view the credit score as a game, and they simply want the highest score in the game.
If you do want a perfect credit score, then you will have to do a few basic things. Most importantly is to always pay your bills on time. Other important things are to not use all your available credit and diversify your types of credit accounts. If you are dissatisfied with your credit score and are in need of credit repair, call one of our credit specialists for a free credit consultation.