Credit Scores play an important role in customers' financial journey throughout their life. For the longest time, people have been going crazy about how they can have the highest credit score, without knowing the technicalities behind it and whether they need to have the highest credit score in the first place. Here, we will discuss what is the highest credit score, the importance, benefits of having the highest score, the best way to get a perfect credit score, various scoring models, and much more. But prior we get deep into what we are discussing, let us first learn what a credit score is.
This is a 3-digit number produced by mathematical algorithms from the details provided by the top credit bureaus and a one-stop gateway for lenders to check how much risk you as a customer can take. This score is calculated as per your credit history, your income, how you handle your monthly bills, the amount of debt you have taken, the number of bank accounts you have, and so on. This score is measured on the scale of good, excellent, highest. The higher your credit score is, the more likely you are to qualify for loans and to receive affordable interest rates.
The credit score is determined by credit bureaus through credit scoring models. For both models, the maximum credit score is 850. The scale for the credit score ranges from 300-850. The ranges for all three categories for both credit scoring models are discussed below. The higher your score the more confidence the lender shows in you while giving out loans. However, please note that maintaining the credit score is difficult as your score fluctuates at regular intervals as per the activity in your profile.
Fran Issac Cooperation (FICO) was the first company to release credit scores, later on, in 2006, the major credit bureaus Equifax, Experian, and Transunion released their consumer credit rating known as VantageScore.
FICO Score - This credit score rating model covers 5 areas to check the creditworthiness of the customer.
|Length of credit history||15%|
The payment history determines if the customer has been making timely payments, any previous bankruptcies, and also the time taken to resolve these issues. The longer these issues persists, the greater the negative impact to the credit rating. The next factor is the account owed. As per the credit score mechanisms, it is considered that if a customer is spending more than the credit limit, then it will affect the credit score negatively. Next, the length of credit history.
A person with no credit history will be analyzed differently from someone with a long credit history, since credit scores are compared differently based on the individual's credit history. However, generally, the longer time the customer has been using credit, the better the score is. Credit Mix, lenders need to check what all lines of credit consumers have and how well they are handling them, for example, credit credit cards, student loans, retailers' cards, etc. Last but not least, new credit. This refers to any new loan borrowed and the number of bank accounts the customers have opened in the past years. If they have opened more accounts in a short period, it will result in lowering the credit score.
FICO score is different for small business called FICO SBSS and personal. For the former, it's 0-100 and for Personal FICO scores have a different industry-specific credit score that ranges from 250-900. A scores ranging from 670-739 max is considered a good credit score. The scores have been categorized as follows:
VantageScore- While FICO uses percentages to show the weightage of factors, VantageScore shows in terms of influence, how influential one factor is. Vantage Score has been developed and updated at regular intervals and has its latest model VantageScore 4.0 model.
|Available credit||Less influential|
|Recent Credit Application||Less influential|
|Depth of credit||Moderately influential|
|Payment history||Highly influential|
A credit score is a risk assessment of a customer, that will be taken into account every time they apply for a loan, credit card. It is used by the landlords to help them decide whether to give you the apartment on rent, or by the insurers while providing automobile or home insurance. Even employers and basic utility service providers like telephone companies check the credit score. Customers with lower credit scores might pay a security topic to get utility services or maybe a letter from someone who will pay the credit if you are not able to. So, you see, how difficult and time-consuming this process can be.
Customers with lower credit scores are also charged with higher rates or may be barred from premium services, which could've saved tons of money. A credit score is the most important element of a customer's financial life, which acts as a base for them and if every credit decision is made based on the credit score, then this score can be a blessing for the customer.
Having the highest credit score can be as rewarding as it can be. The credit score contributes significantly to financial planning. Maintaining the highest credit score can decide what your financial life will look like in the coming times depending on how well you handle it. Some of the benefits are listed below:
Getting a premium credit card directly depends on your credit score. If a customer has high credit, then they will be eligible for lower annual percentage rates (APR) and monthly interest rates as well. Also, even one can negotiate with the credit card provider considering the promising credit they have and they might have even less interest rate than they have fixed which will help in paying off the loans faster and saving more.
The highest score indicates how much potential risk taker you are and this direction can be related to the quality of life that you will be living. From getting a mortgage for a house with the lowest interest rates to qualifying for quality rentals and insurances, everything can be made easier with this score. According to Experian, a minimum credit score between 620-700 is needed to qualify for the house rentals. A high credit score also prevents customers from paying a large amount for security deposits or finding a consignor.
When you form any utility services in your name or transfer it to a different location, a certain security deposit of 100-200 dollars is charged which people with high credit scores can choose to skip.
Your credit limit is decided as per your borrowing and earning capacity. A high credit score demonstrates that you have paid back your money on time and that's how you have built your trust in lenders and get approved for higher credit limits.
The secret to obtaining a perfect credit score is not as mysterious as it seems. All you have to do is "Pay your bills on time". Yes, it's that simple. However, you might have to follow a few more points in case of complexities that will be discussed below.
Consistency in paying bills on time is the most crucial factor for achieving a highest score. Please note that default on 1 single payment can damage the credit score to a large extent.
One of the common things that you will notice in the 1% of people who have the highest score is that they have to build a strong credit history by being disciplined for years. These customers have been on record for a longer period.
Credit utilization defines as how much credit is available to you and out of that how much you are using, that is how much amount of revolving credit you are using. Now it's important to mention here that people who use credit for 2-3 selective purposes like mortgage and utilities tend to have a less credit score than those who use it for different purposes. Also, not using the credit limit is not a good sign. Ideally, the credit utilization should be 30% of the credit limit. This shows that you are managing your finances.
While it's important to spend the credit limit to an extent, you need to understand that the complete credit limit doesn't exhaust as it shows irresponsibility and bad money management on the part of consumers. Please note that if you are making a substantial payment from your credit limit, then you might see a stagnation in your credit score, and also if you are using it within the limit, it still takes time to get updated which is generally 30 days.
Don't put all your eggs in one basket. You've probably heard this saying before. This doesn't only applicable for safe and systematic planning but building a high credit score as well, this shows you handle multiple loans at the same time. This can be for two types of loans
As per the research undertaken by Discover Card, 76% of people who checked their credit scores 7 times in the past 1 year have seen improvement in their credit score as compared to others who checked the score only 1 time. The reason for the same is when you keep everything in check from your side by making timely payments, there might be some negative aspects that pop up which you are not aware of. Scanning through your reports to check if there's an error or any fraudulent activity can always prove beneficial. Visit the annual credit report site for a free copy of your credit report.
Make sure you use a credit card as per your needs. There are a lot of credit cards available that charge unnecessary fees in the name of the month and yearly fees. These cards have the potential to put a hole in your pocket. One should go for secured credit cards, that ask for collateral or security deposits that help in building a credit history. Also, store cards which provide cashback and points can be a great choice.
The Director of public education of Experian credit bureau, says that the lower the credit score of a person, the more likely to achieve a 100-point increase. How can you accomplish this? First, you need to understand what are aspects are damaging your credit score and do exactly the opposite of that. A well-designed strategy can help raise your credit score quickly.
If you become an authorized user for a person who has a good credit history, then you will see a positive impact on your credit report as well. As per the study done by credit sesame, people with fair credit history saw an 11% improvement in credit scores after becoming authorized users.
As per a report by the Consumer Reports Association, more than 34% of Americans find some kind of error in their credit report, and the issue has been the same in other countries as well. So, verify that the information on your credit report is accurate and complete. If there's any error, or you find out that there's a fraud happen or your identity has been stolen then dispute those issues ASAP. You can do so by going through the credit bureau website to portal and can call them or mail them to the registered address.
Several resources that are available for checking your credit score for free are:
You can check your FICO scores on websites like Citi and Discover whereas for vantage scores, you can check out Capital One and Chase.
The annual credit report is authorized under law to fill orders for credit reports. As per which customers have a right to get a free copy of credit report every from all three credit bureaus. You can go through their website and order the credit report, also you can fill the annual credit report requisition form that has to be mailed to a particular address which you can find here.
Credit Karma website reflects your free credit score accurately as per the information provided by two credit bureaus, TransUnion and Equifax. Please note the credit score and credit report provided are as per the Vantage Score 3.0. This platform does not ask for your credit card details and provides you with information for various financial products. For using this, you just need your name and social security number, the website then as per information of spending habits will provide you with the credit information.
Wallet hub promises to help people reach the top financial fitness by providing free credit score and credit reports daily. To identify your credit score on this platform, you need to give your personal details, social security numbers and have to answer a few questions. It also provides 24x7 free personalized advice and credit monitoring that help you to be up to date with your credit history.
These are frequently asked questions and short answers about credit score.
Not at all. All you need is a "Good" credit score.
Have the automatic payments option enabled, limit the number of credit cards and accounts. They might result in a hard inquiry which damages your credit score.
No! An excellent credit score is enough to get the best offers, in fact, only 1% of the people have the highest score. So, it will be an unrealistic goal in the first place and even it is very difficult to maintain that score all the time. If your credit score is 720 or higher, that comes within the excellent category.
While the importance and benefits of the highest credit score are undeniable and Anyone with strategic planning and patience can achieve this credit score. Also, you need to understand that age plays an important role in credit history. As per a survey done by FICO, the average age of the oldest account is 30 years old, so it makes it difficult for young adults to get the highest score. Furthermore, it is important to ask yourself why you need the highest credit score when the best and excellent score will suffice for whatever offers and creditability as a consumer you are looking to build. If you have good reasons to do that then follow the above mentioned strategies and tips and you'll achieve this credit score with ease!