Ever notice how you go to apply for a new credit card, loan or even store card and either the banker or application asks about your credit score?
The term credit score is just about everywhere, and it seems as if having the highest credit score possible can open up all sorts of doors for an individual.
Is that true? Well, yes and no.
It’s true that having a high credit score can help you out in a variety of different ways, including being approved for a car or home loan, but does having the highest credit score really make your life that much better? Is it even possible?
Yes, you want to have a high credit score, but perfect means something different to every individual. So, before we talk about improving your credit score, let’s talk about what this score is.
What Is a Credit Score?
Simply put, an individual’s credit score is a three-digit number that relates to how likely they are to repay debt. Remember how we stated that applying for a credit card or loan refers to these scores? That is because loans and credit cards are banks or organization lending you money.
Your credit score will tell them what their risk level is if they should decide to lend you that money. Those who have higher credit scores are more likely to be approved for larger credit limits or loans because they have proven that they can keep their debt down while also repaying their debt in a timely manner.
While many believe that they have a single credit score, the truth is that each person has a variety of different scores depending on which credit bureau they are checking with. Before we talk about the different credit bureaus, let’s look at the two main ways that a credit score is calculated.
Ever notice how your FICO score seems to be popping out more often? For example, many big-name banks now include your FICO score with your monthly credit card statement. But what is a FICO score?
A FICO score is a credit score that is developed by a company, Fair Isaac Co., that specializes in “predictive analytics.” This means that they take information and analyze it to try and predict what may happen, such as when a person applies for a new credit card.
The FICO score of that individual will help lenders predict that person’s overall behaviors. For example, it can help the bank see a given individual’s likelihood of paying their bills on time.
While many consumers are used to hearing about FICO scores, there is a newer credit score that is quickly growing in popularity, and that is a person’s VantageScore.
Much like a FICO score, a VantageScore is a consumer credit score that is used by lenders, landlords, and credit card issuers to determine who likely an individual is to repay their debts. The three credit bureaus came up with the algorithm to produce the VantageScore in 2006, and while it used to have its own score range, it is now using the same range as FICO scores.
Who Are the Three Credit Bureaus?
While FICO and VantageScore are often confused as the credit bureaus, they are only the companies that come up with the algorithms that generate credit scores.
A credit bureau is a company that actually collects the information relating to an individual’s credit score. These companies then make this information available to credit card companies and other financial institutions.
There are currently three major credit bureaus that collect information relating to an individual’s credit score: Experian, Equifax, and TransUnion.
Experian gathers, analyzes and processes data in ways that help individuals take financial control and access financial services. They also help businesses make a smarter decision, so they can continue to thrive, while also helping lenders lend more responsibly and organizations prevent identity fraud and crime.
For over than 125 years, Experian has helped consumers and clients prosper, and economies and communities flourish. They state that their responsibility is to assist lenders in managing consumer credit risk while also empowering consumers to understand and responsibly use credit in their lives.
Equifax prides itself on being a consumer advocate, steward of financial literacy, and a champion of economic advancement. Their data assets, technology, and analytics help to transform knowledge into insights that power better decisions across the board for both consumers and businesses alike.
As an innovative global information solutions company that enables access to credit, Equifax claims to establish relationships that create economically healthy communities and help individuals gain financial independence by increasing access to capital and micro-lending for small businesses.
TransUnion states to be more than just a credit reporting agency. They also claim to be a sophisticated, global risk information provider that strives to use information for good.
This credit bureau has a mission to help people around the world access the opportunities that lead to a much higher quality of life, and they do this by helping the organization optimize their risk-based decisions and enabling consumers to understand and manage their personal information.
TransUnion states that they help their customers grow by understanding their ever-evolving needs.
What Is an Ideal Credit Score?
Before you can plan on ways to get your highest credit score to date, you need to understand that there are a variety of different ranges that users may come across. While most places rely on either the FICO score range or the VantageScore 3.0 range, it is important to know that different ranges can come into play.
There Are A Variety of Credit Score Ranges
As mentioned earlier, there are some different credit score ranges that different facilities may consider before granting you a loan or line of credit.
Below, we’ve listed the different credit score ranges that a can play a factor into whether or not a credit company will extend a line of credit or loan to a given individual:
FICO Score range: 300-850
VantageScore 3.0 range: 300–850
VantageScore scale (versions 1.0 and 2.0): 501–990
Experian’s PLUS Score: 330-830
TransUnion New Account Score 2.0: 300-850
Equifax Credit Score: 280–850
Ideal Credit Score Ranges
As you can see above, the average credit score ranges between 300 points and 850 points. When checking your credit, you’ll often see that it falls into one of the following categories: “very poor,” “fair,” “average,” “good,” and “excellent.”
How does one determine what category they fall into based on their numerical score? Below is a basic breakdown that is used by FICO and VantageScore:
If you want to fall into a good credit range, you’ll want to aim for a score between 670 and 799. If you are aiming for exceptional, you’ll want to try getting your score into the 800 through 850 range.
5 Ways to Monitor and Get Your Highest Credit Score Yet
When it comes to getting your highest credit score yet, you’ll want to consider the different weighted factors that go into determining a person’s credit score.
There are many different myths about how to earn a high credit score, so how does one go about improving their credit score if they are new to the process or simply want to raise their current score?
The best way to do this is by monitoring the five aspects that are used to determine a person’s credit score. Each of these factors weighs heavily into the scoring process, and some are easier to monitor and work on than others.
Probably one of the most important factors in someone’s credit score is their payment history. Traditionally, this factor accounts for around 35% of a person’s credit score.
Having a good history of on-time payments is one of the best ways to maintain a good credit score. That being said, missing even one payment could hurt your score. Depending on the missed payment, a single payment can lead to a variety of different things such as increasing the amount of time you are in debt and so on.
The next most important factor to consider is the overall credit utilization one uses. Your credit utilization refers to how much of your credit you actually use and haven’t paid off.
For example, say you have a credit card with a maximum credit line of $5,000.00. If you are using 4,500.00 each and every month, that means you are using 90% of your credit limit. This is not a positive thing when it comes to your credit score.
Now, this was only for a person with a single line of credit. For those who have more than one line of open credit, then your total credit utilization is averaged over the total amount of credit you are using when compared to all of your open credit lines.
An example of this would look like this
Credit Card Balance
Credit Limit on Card
Card 1: $250.00
Card 2: $3,500.00
Card 3: $50.00
Total Used Credit Balance: $3,800.00
Total Credit Limit: $9,000.00
This person’s credit utilization would come out to about 42%.
When it comes to a person’s overall credit score, the rule of thumb is to stay under 30% total utilization. Because this category weighs in at about 30% of a person’s overall credit score, it’s a big deal. It is also one of the easier aspects to control. Making consistent payments, on time, will help to keep this number down. Moreover, the more you can keep down, the higher your credit score will be.
Length of Credit History
Coming in at around 15% of a person’s overall credit score is the overall length of their credit history. The length of one’s credit history considers a few different things, including the following:
Many people open and close accounts willy-nilly, not realizing that it can play a pretty big role in their overall credit score. Opening new accounts can cause a dip in your score because it could lower the average age of your accounts. However, closing accounts could also lower your score but the fact that a closed account can stay on your credit report for up to 10 years means that it may not impact it as quickly as some other factors.
Mix of Accounts
Having a mix of accounts account for about 10% of your overall credit score.
What does it mean to have a mix of accounts? This means having installment student loans and revolving credit card accounts.
Does that mean you should go take out a new loan in an attempt to raise your overall credit score? No, but if you are responsible with your spending, opening a low limit credit card account that can easily be paid off after each use may help you bring your score up a little bit.
New Credit Inquiries
How many times have you been told that having a “hard inquiry” on your credit report will lower it? While that may be true for some individuals, new credit inquiries only account for around 10% of an individual’s credit score.
When applying for new lines of credit or things such as a new apartment, creditors or prospective landlords may review your credit reports and scores to see if you are a good candidate to lend or rent to.
Many individuals are afraid to have their credit checked because myths state that inquiries only hurt your credit score. It’s important to remember; there are two different types of inquiries, soft and hard inquiries.
Soft inquiries include checking your own score along with some loan and credit card prequalifications. These don’t hurt your score at all.
Hard inquiries include having your credit check by creditors when you are applying for something like a home or auto loan. These inquiries can hurt your score, but if you have a relatively good score, this will only be temporary, despite the fact that an inquiry can sit on your credit report for up to two years.
What Does a Good Credit Score Get You?
There is any number of reasons why people want to achieve their highest credit scores to date, but does it really have any good benefits for the individual?
There are a few enticing reasons as to why you want to have a higher credit score. Please take note that we did not say a perfect credit score.
The higher your credit score, the better deals you’ll be eligible for in a variety of different areas, including credit cards and loans.
For example, a good credit score can help an individual get a lower interest rate when borrowing money. The lower the interest rate, the less money you’ll end up paying in the long run. Say you are buying a new car. If your credit score is high enough, you could qualify for 0% interest, meaning that you’ll pay a flat rate over the agreement of your auto loan.
Now compare that to someone who has to pay 4.21% on their 60-month loan. That car that started at $15,000 could cost you as much as 16,660.30 (minus taxes and other fees of course) with not only the total principle but after the total interest is paid as well.
So, which would you rather pay? The $15,000.00 with 0% interest? Alternatively, the $16,660.30 with the 4.211% interest?
Perfection Is Subjective - Conclusion
When it comes to earning your highest credit score yet, you can shoot for perfection, sure. However, that doesn’t mean you have to hit a perfect 850 credit score.
With so many different factors that can change a person’s credit score in an instant, it can be really difficult to hit that 850. However, if you are simply shooting for a personal goal of 785, that would still put you in the “very good,” or “excellent” range depending on which credit score you are looking at!
Perfection is all in the eye of the beholder, so if you are simply looking to get your personal highest credit score yet, then shooting for higher than your last score is a win in itself!
Take things one step at a time, and soon enough, you’ll begin to see your credit score heading towards the green!