The Perfect But Elusive Credit Score
By Sylvia Burleigh
Believe or not, some people are obsessed with obtaining a perfect credit score according to a recent CNN Money article. In fact, so preoccupied with getting their score to 850 that the CNN Money website cleverly dubbed them the “800 Club.”
The reality is that less than 1% of the US population has a perfect credit score of 850. These elite folks, approximately 1 million, not only receive the lowest APRs, but qualify for large loans more quickly and are also offered the best reward programs, everything from Discover’s Cash Back to Airline Miles to American Express Retail Rewards. Let’s just say it pays to have the highest credit score you can possibly obtain.
What it Takes to be an 800 Club Member
- Age becomes a credit report. Like fine wine or cheese, it’s just a fact of life that people with longer credit histories have better credit scores, that is if they manage to hold onto those credit cards with history. Never close a long-standing credit card, and use them occasionally so that card issuers do not close them for you because of non-use. If you still have the very first credit card you ever opened at 21, you should know that it accounts for 15% of your credit score.
- Pay on time, every time. This sounds almost too simple to be true, but people with high credit scores pay it off every month before the due date. Payment history accounts for 35% of your credit score. People of the 800 Club also know never to charge more than 30% of their available credit limit, because any higher than that and their credit scores would begin to rise.
- Have a balance of installment and revolving credit accounts on file. Members of the 800 Club know that to obtain that 850 score, they need to have a balance of both revolving credit and installment loans. So an average number of loans and credit cards for a typical member of the 800 Club might be a car loan, a mortgage, and 3 or 4 credit card accounts.
- Pay off credit card balances before applying for a loan. Even before you research interest rates for loans, pay off all debt on your credit cards. The entire amount of debt a consumer has accounts for 30% of their credit score, sometimes referred to as your debt-to-credit ratio or credit utilization. Your credit utilization can be calculated by dividing your entire credit card balances by the amount of available credit, this would be your credit limits, than multiply that number by 100. The lower your debt-to-credit ratio is the higher your credit score. You’ll also benefit from lower interest rates when applying for a mortgage or car loan.
- Limit your credit inquiries. There are two types of credit inquiries: soft inquiries which are made by rental agents or employers and hard inquiries which are made by potential lenders or card issuers. It’s the hard inquiries that affect your credit score and history. According to Fair Isaac’s research, having a large number of inquiries for multiple lines of credit within a short span of time can make you appear as a greater risk. However, inquiries while rate shopping within a 30-day period for one loan, such as a mortgage, car or student loan, will appear as “one” inquiry in determining your credit score. Of course, all things being equal, credit inquiries and how they affect your credit score will vary according to a person’s credit history, number of opened accounts, types of accounts, length of credit and past inquiry history. For more information, see our page on credit scores.
http://www.usatoday.com/money/perfi/credit/2011-01-08-perfect-credit-score_N.htm
http://www.myfico.com/Default.aspx
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