We hear a lot about credit scores these days and their effect on interest rates for loans and credit cards. But more and more, landlords and potential employers are also using them when deciding whether to rent an apartment to you or to hire you for a new job. You the know the higher the number the better, but what is the highest score you can get and what is the range?
It’s just as important to know your credit score (which can change by the day) as it is to know the contents of your credit report. A credit score is a three-digit number that’s designed to show potential lenders how likely you are to not pay your bills, based on your payment history, the amount of debt, the length of credit history, etc.
Different Credit Scores Out There
Exactly what is considered to be a high credit score depends on what type of scoring system is being used.The most common ones used are FICO scores that range from 300 to 850, but there are others now on the market that start as low as 100. Once you know the range and find out your own credit score, you will know how lenders view you as a credit risk as compared to other borrowers.
Here are some various credit scoring models and their respective score ranges that are currently used by lenders:
- FICO Score: 300-850
- VantageScore 3.0: 300–850
- VantageScore (versions 1.0 and 2.0): 501–990
- PLUS Score: 330-830
- TransRisk Score: 100-900
- Equifax Credit Score: 280–850
Those with higher scores are more likely to get approved for credit, receive the best interest rates, and possibly get discounts on insurance. For FICO scores, anything above 720 is considered to be an A. About half the U.S. population has A-minus or better credit. Only about 10 percent of the population has an 800 or better, and approximately 25 percent of consumers have a rating of C or below.
Most credit scores, including the FICO score and the latest version of the VantageScore, operate within the range of 301 to 850.
Within that range, there are usually different categories, from bad to excellent:
Credit Score Ranges and Quality
|Credit Score Ranges||Credit Quality||Effect on Ability to Obtain Loans|
|300-559||Very Bad||Extremely difficult to obtain traditional loans and line of credit. Advised to use secured credit cards and loans to help rebuild credit.|
|560-649||Bad||May be able to qualify for some loans and lines of credit, but the interest rates are likely to be high.|
|650-699||Average/Fair||Eligible for many traditional loans, but the interest rates and terms may not be the best.|
|700-749||Good||Valuable benefits come in the form of loans and lines of credit with comprehensive perks and low interest rates.|
|750-850||Excellent||Qualify easily for most loans and lines of credit with low interest rates and favorable terms.|
However, different lenders may have different definitions of what is considered to be a good credit score. One lender that is looking to increase their number of borrowers might approve applicants with credit scores of 650 or higher. Another might be more selective and only approve those with scores of 750 or higher. Or, both lenders might offer credit to anyone with a score of at least 650, but charge consumers with scores below 700 a higher interest rate.
To avoid any nasty surprises and to correct errors, you should be reviewing your complete credit report at least once per year or better yet, every four months. Sometimes only a “soft” credit check is done where they are simply looking at your current credit score, while a “hard” credit check would include your complete credit report.
You can request your free credit report from AnnualCreditReport.com or directly from the three major credit score companies: TransUnion, Experian, and Equifax. However, a credit report does not include your credit score. You would have to pay about $8 – $10 to get that, but now many banks, credit unions, and credit card companies such as Discover are offering to provide this as a free benefit.
Living Within Your Means for a High Credit Score
Tom Pavelka of Westlake, Ohio has a higher credit score of almost everyone else in the U.S. With a score of 848 out of the maximum of 850, he once received a letter from a credit bureau saying his score “ranks higher than 100% of U.S. consumers.”
“It’s almost impossible to have a perfect credit score,” said Rod Griffin, director of public education for Experian, one of the three major credit bureaus. “If you use credit and you have debt, there’s always some risk you will not be able to repay it. You could become ill, or you could be in an accident that’s not your fault. Because there’s always some risk from things beyond your control that you won’t be able to repay the debt, you won’t have a perfect credit score.”
Pavelka does not spend a lot of time obsessing over his credit score and rarely even checks it. He also has a very expensive hobby — he collects old cars. Pavelka and his wife own seven vehicles including two British sports cars from the 1960s and a 1958 Corvette. On his government salary at the Department of Labor, they frequently eat out at nice restaurants and collect vintage red wine. His wife also works and they don’t take expensive vacations. A real money saver is the fact that they don’t have children. They can put $2,000 on a credit card and easily pay it off each month.
Pavelka says he has just a few simple financial rules that he lives by:
- Never charge something without having something to show for it.
- Never spend money without knowing when you can repay it.
- Pay your bills on time.
Don’t think that you have to have zero debt in order to get a perfect credit score. If you have no credit history such as never taking out a loan or using a credit card it can be almost as bad as having a poor credit history.
The Pavelkas have paid off their mortgage, but have a home equity line of credit that they use to buy cars and then pay back. They use four credit cards that they pay off each month and have a total of eight credit cards with available credit of approximately $120,000. “I don’t like being called frugal,” says Pavelka. “I like to spend money. I just do it wisely.”
Typical “High Achievers”
According to the Fair Isaac Corp., those with a FICO credit score of 785 or greater are considered to be a “high achiever.” Here are some of the characteristics of high achievers:
- They have an average of seven credit cards including both open and closed accounts.
- They have an average of four credit cards or loans with balances.
- One-third of high achievers have total balances of more than $8,500 on non-mortgage accounts; the remaining two-thirds have total balances of less than $8,500.
- 96% of high achievers show no missed payments anywhere on their credit report.
They seldom open new accounts. Their oldest credit account was opened for an average of 25 years and the most recently opened credit account average is 28 months ago. Overall, their average credit account is 11 years old.
Griffin of Experian says all credit bureaus give the same advice: “Don’t worry about your credit scores. Worry about managing the credit you have and worry about your credit history. If you do that, the scores will take care themselves.”
Main Ways to Increase Your Credit Score
To get the highest possible credit score (or to just improve the one you currently have) start by understanding what goes into your credit score. When it comes to the FICO credit score, the most commonly-used credit score by lenders, these are the factors that go into the calculation:
FICO Credit Score Factors and Their Percentages
|FICO credit score factors||Percentage weight on credit score:||What it means:|
|Payment history||35%||Your track record when it comes to making (at least) the minimum payment by the due date.|
|Amounts owed||30%||How much of your borrowing potential is actually being used. Determined by dividing total debt by total credit limits.|
|Length of credit history||15%||The average age of your active credit lines. Longer histories tend to show responsibility with credit.|
|Credit mix||10%||The different types of active credit lines that you handle (e.g., mortgage, credit cards, students loans, etc.)|
|New credit||10%||The new lines of credit that you’ve requested. New credit applications tend to hurt you score temporarily.|
Then, follow these guidelines and stick to them the best you can:
- Get a copy of your current credit report and current credit score. A free credit report can be obtained from each of the three major credit bureaus once per year, so ask for a different report every four months. Credit bureau contact information can be found here, as well as all-important tips such as “how to get a live human being” to talk to.
- Fix any errors by contacting the store or credit card issuer, rather than the credit bureaus. The bureaus will not take your word for it if there are mistakes.
- Always pay your bills on time. Easier said than done, you say? Keep in mind that late medical bills and apartment rent are generally not reported to the credit bureaus (although you do need a place to live). It’s much easier to keep track of due dates if you pay your bills online through your bank. Then you can schedule payments for any date even if it’s not due for a few months. Plus you’ll have written proof that the payment was made on time, and you won’t have to worry about delays in the mail.
- Don’t charge more than 35% of your credit limit. You are better off having several cards with low balances rather than one that is very close to the credit limit. And if you think you can pay them off in a reasonable timeframe, do take advantage of 0% interest balance transfer offers. Usually, you can get 6 months to a year interest-free, but at the end of the period, the rate will go way up if you can’t find another good offer to transfer to.
- Ask for an increase in your credit limit. This is especially the case for the cards where you’ve hit 35% of the credit limit. But don’t use the extra borrowing potential!
- Pay at least the minimum amount due each month plus $10. Make sure the payment arrives at least one day before the due date.
- Never bounce a check. This will also stay on your credit report for seven years. Ask your bank for a small amount of reserve credit that will cover any “insufficient funds.”
- Find a starter credit card. If you are just starting to establish credit in your own name, ask for a small amount of credit for a MasterCard or Visa, or a retail store card. If you are turned down, apply for a secured credit card from your bank that uses money in your savings account as security.
- Contact the lender right away if you have trouble making payments. The worst thing you can do is ignore them. Explain your financial situation and agree on a new payment schedule that you can manage. Get the agreement in writing and ask them to include a note that your payments will not be reported as late.
If you need any kind of advice to help get out of debt and improve your credit history, find a find a low or zero cost agency to help you. There might be free services available from your employer, military base, credit union, housing authority, or a local branch of the U.S. Cooperative Extension. Beware of for-profit companies that charge you a fee and promise to have all or most of your debts forgiven. Even if they pull it off, your credit score will plummet.