Having a goal of reaching the highest credit score can be worthwhile. Not only will it motivate you to be more aware of your credit, but you can also save money by having a top-tier credit score.
But what is the highest credit score? According to the most popular credit-scoring models, the answer is 850. Keep reading to learn about credit scores, why you might not get approved with a perfect score and what might jeopardize a top score.
How Many People Have Top-Tier Credit Scores?
Not many. Although approximately 20% of Americans have top-tier credit scores of 800 or more, only a small percentage — about 1% — of Americans possess a perfect credit score of 850.
What leads to a perfect credit score?
A perfect score of 850 is possible, but it may not be easy. Here’s what contributes to a perfect score:
1. Available credit
Credit utilization — the amount of total credit in comparison to the amount used — is kept low, and under 10%.
Another strategy is to consider asking a family member with excellent credit if you can become an authorized user on one of their credit card accounts. As an authorized user, your credit score can benefit from your relative’s good credit habits.
2. No missed payments
Payment history counts for a large portion of credit scores, and a missed payment can wreak havoc. Automated payments — or reminders help make sure credit card or loan payment’s aren’t missed.
3. Emergency funds
Emergency expenses can catch you off guard and result in a higher level of credit utilization than the recommended amount — under 10% — that can help create a perfect credit score.
If you haven’t already, consider starting an emergency fund with a goal of saving approximately 12 months of take-home pay. Then, if the unexpected arises, you’ll have cash reserves to draw from without tapping your available credit.
4. Credit Mix
Because different types of credit is part of the credit-scoring model, it’s important to have a versatile credit history. The mix of credit reflects how well-rounded and financially responsible a borrower can be.
But that doesn’t mean you should apply for credit cards, a car loan and a mortgage in close succession. If it appears that you opened various forms of credit and loans within a short period of time, lenders may consider you more of a credit risk.
5. Monitor your credit reports and scores
Consider signing up with a product that will allow you to keep an eye on your credit reports and scores regularly. With this strategy, you’ll notice if your credit score drops and you’ll be able to pinpoint the event that caused it, such as a missed payment.
Plus, if the information is an error, you’ll be able to start a dispute with the credit bureaus more quickly than if you only checked your scores once or twice a year.
In general, it can take 10 years of positive account history to reach a score over 800, so don’t lose patience. Also keep in mind that once you have a top-tier credit score, you can get you many, if not all, of the same benefits that an 850 score does.
Here’s some more information about the perfect credit score:
What Can Cause a Perfect Credit Score to Change?
If you’re able to reach a perfect credit score, don’t get too attached. Your score will likely fluctuate due to things like credit applications or the amount of credit you utilize at any one time.
Credit utilization applies to both individual credit card accounts as well as all of the active accounts you have as a whole. So even if your overall credit utilization is under 10%, be careful not exceed 10% utilization on each individual card either.
Does a Perfect Credit Score Guarantee Approval?
Although it may seem like having a perfect score will guarantee approval for any credit card or loan you apply for, it doesn’t. When lenders and creditors are considering your application, other factors besides your score come into play.
Here are a few reasons why you may not be approved with a perfect score:
1. You have a high debt-to-income ratio
Although your credit score may be perfect, carrying a lot of debt relative to your income can cause a lender to deny your application. (Creditors don’t typically have information about your income unless you provide it.) A good debt-to-income ratio is 36% or less of your gross income.
Here’s more information about debt-to-income ratio:
2. You have a past bankruptcy
Even though your credit score may have bounced after a bankruptcy, the derogatory mark can stay on your credit report for seven to ten years. Unfortunately, some lenders may have rules in place that prevent them from doing business with anyone who has a bankruptcy listed on their credit report.
3. You often apply for cards to get the initial perks
If you’re in the habit of applying for credit cards just to rake in the hefty sign-up bonuses, credit card companies may take note and start to deny you for other offers. Creditors offer bonuses to get you to use the card. If you don’t use it, then the creditor gets nothing out of having you sign up for the card. In fact, it loses.
Does a Perfect Credit Score Really Matter?
Not really. As long as your credit score is 800 or higher, you will likely qualify for the best financing rates and offers available. Striving to reach a perfect score of 850 will probably do nothing more for you than give you a sense of self-satisfaction.
The Bottom Line
A perfect credit score is impressive, but probably not necessary to gain access to the best credit card offers and interest rates. For example, the best mortgage rates are typically offered to people who have scores in the 760 to 850 range.
If you have an excellent score, however, you’ll want to avoid losing a large amount of points. One way to do that is to actively monitor your credit scores and reports, which can help you catch errors or the fraudulent use of one of your accounts.
If you’re not already monitoring your credit, what’s stopping you? Let us know in the comments.