You probably know that a credit score is important, but you’re not sure exactly why. Even if you’ve checked your credit score before, it won’t help you unless you understand what you can do with that number.
In essence, the higher your score, the more you may be able to achieve your financial goals, such as buying a house or getting that coveted rewards credit card. Before you do so, it’s important to learn what the highest possible credit score is so you can try to get as close to it as possible.
What Is The Highest Credit Score Possible?
To be clear, there are different types of credit scores, though the Fair Isaac Corporation, or FICO, credit score is the one financial institutions and lenders use to determine whether to issue you a loan or credit card. There are a few FICO scores you’ll get from the three major credit bureaus—Experian, TransUnion, and Equifax. Your main FICO score will be the median number — so if you have scores that are 600, 650, and 700, your FICO score will be around 650.
The FICO score ranges from 300 to 850. That means the highest score you can get is 850. Keep in mind that it’s not common for people to have an 850 credit score, though coming as close to it as possible can be doable.
Why Is Having A High Credit Score Important?
Having a high credit score is important because it shows how creditworthy you are in the eyes of a lender. Think of this three-digit number like a scorecard: the higher your score, the more favorable you look. More specifically, higher scores means you’ve been responsible with credit and are more likely to pay back loans you borrow.
Lenders deem you as a less risky borrower when you have a high credit score, hence more willing to lend you money and at more competitive interest rates. It means you could pay less overall in interest. In some cases, you may be able to avoid fees such as origination fees for personal loans.
What Factors Determine Your Credit Score?
There are several factors that determine your credit score and are based on your credit history — behaviors showing the chances you’ll pay back your debts.
- Payment history: this factor is probably the most important because even having one missed or late payment can negatively affect your score. Your payment history accounts for 35% of your FICO score.
- Credit utilization: your credit utilization ratio is the percentage of the balance you owe compared to your revolving credit limit. The higher your credit utilization, the lower your score could be because lenders may believe you’re stretching yourself too thin financially if you’re borrowing too much money in their eyes. To calculate your credit utilization ratio, take the total balance of your revolving credit accounts (such as your credit cards and lines of credit) and divide it by the total credit limit of all of those accounts.
- Length of credit history: The longer your credit history the more your score could go up. That’s because it shows lenders you’re been responsible for credit for a while.
- New credit: This factor looks at how many hard credit inquiries lenders have made (it typically happens when you apply for new credit) and new credit or loan accounts you’ve opened. A large number of new credit inquiries or accounts could negatively impact your score as it could signal you’re stretched too thin financially.
- Credit mix: Having different kinds of loans or credit shows you’re responsible with a varying range of credit. The more different kinds you have — such as credit cards, student loans, mortgages, or car loans — the more your score could go up.
Characteristics of Consumers With the Highest Credit Score
The truth is that there aren’t clear defining characteristics of those with a credit score of 850. That being said, here are some of the most common characteristics you’ll find:
- Excellent payment history: Those with high credit scores most likely haven’t had missed payments, collections or other negative remarks on their credit reports.
- Low credit utilization ratio: Most likely, folks who have high credit scores have credit utilization ratios way below 30%.
- Lengthy credit history: In many cases, their average credit account is typically at least 10 years or more.
- Low recent credit inquiries: Even if someone with a high credit score applies for a new credit account, they most likely won’t go overboard.
Benefits Of High Credit Scores
There are several benefits if you have a high credit score:
- Better chance of qualifying for loans or credit cards with more competitive rates, helping you save thousands of dollars or more throughout your lifetime.
- Opens up chances to apply with lenders who offer loan products with the best features
- Better credit card options, such as travel or cash back rewards cards.
- Lower security deposit for an apartment lease if your tenant checks your score as part of their requirements.
How To Get A Higher Credit Score
Increasing your credit score can take some time depending on your credit history and score. The following suggestions aren’t a guarantee, but it’ll help improve your chances.
- Consistently make on-time payments: Considering payment history counts for a large chunk of your credit score, make sure you pay all your bills on time. Even one late payment could negatively affect your score, especially if you’re more than 30 days late. To help with on-time payments you can enroll in autopay.
- Apply for new credit sparingly: If you need to, apply to a few accounts. If you’re after larger loans like mortgages, you can shop around and apply to multiple lenders within a short span of time, and the credit bureaus will count it as one hard credit inquiry.
- Become an authorized user: Those who have limited credit history or a low credit score can ask a trusted person with a high credit score to become an authorized user on their card. Keep in mind you are still responsible for payments, and your score could go down if the main account holder doesn’t make on-time payments
- Review your credit reports: Looking over your credit reports can help spot potential errors that could negatively affect your credit score. You can get these reports for free if you go to AnnualCreditReport.com.
Maintain a low credit utilization ratio: Aim to keep it below 30%, though the lower it is, the more your score could go up over time.