Credit scores are one of the primary tools all lenders use on a day-to-day basis as part of their underwriting procedures. Lenders pull your scores to determine whether you are an acceptable credit risk, and if they want to do business with you. Your scores are also used to determine interest rates and credit limits.
In addition to influencing your ability to qualify and how much you will be charged for financing, your credit scores can influence many other areas of your life. As such, it is no surprise that many people are striving to earn the absolute highest numeric credit score possible.
What Is the Perfect Credit Score?
Technically speaking, there are hundreds of different credit scores commercially available. However, when most people talk about earning the perfect credit score, they are referring to some version of a FICO or VantageScore credit score, the two brands most commonly used by lenders. FICO credit scores are designed to range from 300 to 850. VantageScore’s newest scoring system also uses the same credit score range.
How to Earn the Perfect Credit Score
Credit scores are designed to predict risk, specifically the risk of you becoming 90 days late on any credit obligation within the next 24 months. To earn a perfect credit score, your credit reports must demonstrate that you are absolutely free of credit risk. The following is the DNA of a perfect credit score:
Older Credit History
Your credit history is like a fine wine. It gets better with age, at least from a credit scoring perspective. As the average age of your credit history increases, you will have a better chance of earning higher credit scores. If you are new to the world of credit and the accounts that appear on your reports are relatively young, you will probably have to wait a while before earning that perfect 850 score is a possibility. Your target: The average age of your accounts has to be at least 20 years, and the oldest account just as old, or older.
Flawless Payment History
Earning a perfect credit score requires that you have credit reports which are statistically risk-free. If you have late payments, collection accounts or derogatory public records (tax liens, judgments or bankruptcies) appearing on your credit reports, your chances of achieving a perfect 850 will be 0 percent until that information eventually ages off of your credit reports. Your target: a credit report completely void of any negative information, no exceptions.
Low Credit Card Utilization
The number of credit cards on your credit reports does not really matter all that much from a credit scoring perspective. But the way you utilize those cards matters a great deal. According to FICO, high score achievers have an average utilization of 7 percent, but your target is even higher. As silly as this is going to sound, your target is a no more than two accounts with a balance greater than zero, and a credit card usage ratio of exactly 1 percent.
Very Few, or Zero, Inquiries and at Least One Credit Card and an Installment Loan
Despite myths to the contrary, inquiries aren’t at all problematic for your scores. In fact, most inquiries are meaningless. But, if you want to max out your score, you’ll need to have two or fewer in the past 12 months. And to maximize the points in every way possible, you’ll have to have at least one credit card and one installment loan on your credit report.
Benefits of the Perfect Score
Expecting to tap into a lot of great benefits by achieving the elusive 850 credit score? Sorry to bust your bubble, but the only thing 850 will get you is bragging rights.
The "perfect enough" credit score is anything at or above 760. That score earns you the best rates and terms most lenders have to offer. There’s nothing wrong with aiming for perfection, just know that there are no real additional benefits above and beyond the perks you get by reaching 760.