Credit bureau Experian reported in 2019 that only 1.2% of Americans had earned that elusive 850 score.
The good news, though, is you don't have to have a perfect credit score or even have a score above 800 to be eligible for the best interest rates and credit card benefits.
The Benefits of Having a High Credit Score
There are quite a few advantages to having a high credit score, 740 or above, though a perfect score won't get you much more than a high score will (more on that later). But if you have a high score, here's what it earns you.
Lower Rates on Mortgages, Car Loans, Insurance
A high credit score will save you money on mortgages, insurance and loans.
The most common term for a fixed-rate mortgage length is 30 years, but even shorter mortgages typically last at least a decade. That’s a long time to be paying interest. The highest credit score you are able to get will help you get a lower interest rate, and that could save you tens of thousands of dollars over the term of the mortgage.
Although on a smaller scale, the same can be said for car loans.
Rates vary state to state, but My Auto Loan, an online car loan marketplace, estimates that you could earn an interest rate below 3% for a $20,000 loan with a credit score above 800. However, if your score is below 600, that interest rate could be as high as 17%.
Credit scores can also influence how much you pay for insurance for both your home and your vehicle.
Better Credit Cards
Along with your income and employment history, a high credit rating makes it much more likely that you’ll be approved for the credit card you want. For most people, that means a card with a large credit line, a good interest rate and other benefits.
Those benefits sometimes come in the form of "rewards" such as cash back or points you can use toward travel. According to Experian, it takes a credit score of 670 or better to qualify for the typical rewards card. And as you might imagine, the higher your score, the more valuable the rewards for which you'll qualify.
Better Rates on Refinancing
One of the most popular reasons to refinance a loan is to get a lower interest rate. If your credit score has improved by 50-100 or more points since you got the loan, your new score could make you eligible for a lower rate and help determine whether refinancing the loan makes sense.
If your credit score has improved from 655 to 760, myFICO estimates your new interest rate will be lower by 1.043%. That's a savings of $172 each month on a $300,000 mortgage.
A higher credit score can get you a lower rate on refinancing a car loan, too. More on that here from Clark.com.
Factors To Consider When Aiming for the Highest Credit Score
So how do you raise your credit score? There are lots of ways to improve your credit score because there are several factors used to calculate it.
Here’s what you can do to improve your scores in each of the areas above.
Payment History: Make Your Payments on Time
Payment history is the biggest determining factor when it comes to credit score. That means simply paying your bills on time every month.
Amounts Owed: Keep It Low
Credit utilization (or amounts owed) is the percentage of credit you’re using of all the credit you have available. For example, if you own one credit card with a credit line of $5,000 and you have a balance of $1,000, your credit utilization rate is 20%
Clark strongly recommends keeping your credit utilization under 30%. Better yet, keep it under 10%.
"Thirty [percent] is the target, but also I'd say that's the ceiling," Clark says. "It's very common that someone will have a utilization around 50%, and you'll think 'Oh, I'm fine. I'm only using half of the credit that's been made available to me.'
"But you're past the comfort zone based on historical averages of when you're likely to 'wheeze' on that credit and maybe get to a point where you can't make a payment on time."
That doesn’t mean you shouldn’t use your credit cards. If you have a credit utilization rate higher than 30%, but pay off the entire bill, your number will rebound.
And one way to avoid your credit score "yo-yoing" during months in which you've used credit card a lot is by making multiple payments. Even making two monthly payments instead of one can prevent the credit utilization rate from rising above 30%.
Requesting a higher credit line to lower the denominator in the formula can also help.
Length of Credit History: Build Over Time
This factor in your credit score may be the simplest: the age of your credit accounts. If you’ve had your credit cards and mortgages for 15 years and always pay on time, your credit score will be higher than someone with the same accounts and payment history but accounts that are just five years old.
So all you'll need for this factor is time. And it's why you should keep old credit card accounts open.
Credit Mix: Add Different Kinds of Credit
Your credit mix refers to different types of credit. Generally, someone who has credit cards, a mortgage and a car loan will do better here than someone who has only credit cards.
To improve your credit mix, you could get a car loan at a low interest rate as Beverly Harzog, a credit card expert for U.S. News & World Report, suggests. You could also take out a small personal loan and pay it back on time. Opening new credit won't help immediately, but after about six months of paying the loan on time, your score should go up.
New Credit: Limit Your Applications
Applying for a new credit card or loan will lower your credit score for a couple reasons.
First, applying for new credit leads to what's known as a "hard inquiry." That's when a lender or company conducts a check into your credit to determine whether you're a suitable risk. A hard inquiry usually lowers your score a few points.
The second reason is that opening a new account shortens the average length of all your credit accounts and thus reduces your credit history score.
Once you start using a new credit card, if you make all your payments on time and keep your credit utilization low, your score will rebound.
But choose your applications wisely. You will hurt your score with multiple hard inquiries by applying for too many cards too quickly.
When it comes to a mortgage or car loan, you get a little bit of leeway so you can shop for rates without the hard inquiries damaging your credit. Multiple inquiries for a new auto loan or mortgage count as just one hard inquiry if they are conducted in the same time period. FICO and VantageScore both define that period as two weeks.
Why You Shouldn’t Stress Over Reaching the Highest Credit Score Possible
Changing your money habits to achieve the highest credit score possible is important. But reaching 850 is not achievable for everyone.
Clark recommends aiming for 760. That's the point at which you will begin seeing a lot of the same benefits as someone who has a score of 800 or higher.
Credit card expert Beverly Harzog agrees: "If you can get up to around a 760, you're going to get the same benefits, the same offers, that someone who has an 840 score is going to get," she said.
Even though 850 is the highest credit score possible, you don’t need it to reap the benefits of a high credit score.
To improve your score, pay your bills on time, keep your credit utilization low, work on building your credit history but be judicious when applying for new credit. And know that even getting to 760 can earn you the best benefits available.
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