Credit score is one of the most important figures in your financial life or perhaps the only number that defines your worthiness to borrow money. It is in fact an indication of your credit status – your ability to repay borrowed credit. Credit scores can range from 300 to 850 and the higher number is preferred. However, do you need or desire the best credit score possible? Or is there such a thing as having a score that is too high? Now, let us look at the strengths and weaknesses.
Why People Would Like to have a Good Credit Score
It is obvious that there are a lot of advantages in having the highest possible credit score. A higher score usually indicates that you will be granted more credit cards and loans when you apply. It also leads to reduced cost of borrowing as the lenders consider the applicant less risky. Specifically, advantages of an excellent credit score above 740 include:Specifically, advantages of an excellent credit score above 740 include:
Better Rates on Loans. Whether you are going for a mortgage, auto loan or a personal loan, the higher your credit score, the lower interest rate that you will be able to get. Such differences may be half a percent and even more between different tiers of rates. This implies significant savings on interest charges when taking long term loans such as mortgages.
More Credit Card Approvals. Another advantage of having a high credit score is that you are more likely to qualify for the best credit cards with the most generous rewards. Consumers need to be very careful when applying for premium travel cards that offer attractive point and mile bonuses as issuers are very sensitive to credit risks. The higher the score, the better your odds will be.
Bigger Credit Limits. When you have established your credibility in handling credit by maintaining a good credit score, credit card companies will be willing to offer you larger credit limits. High credit limits enable a person to spend more than a low credit limit would allow.
Lower Insurance Payments. You wouldn’t believe it but car insurance companies rely on credit based insurance scores to fix premiums. The amounts that you remit can be reduced if you have a good credit score as a borrower.
Qualify to Rent. Tenants reports and scores are usually reviewed by landlords before signing the lease with the tenant. Bad credit means that you might not qualify for an apartment you like. Some landlords say that with too negative marks, they deny applications from applicants.
Employment Eligibility. Despite being against the law in some states, credit report checks are common among employers as part of their vetting process for candidates for new positions. Some positions demand good credit to meet security or fiduciary requirements.
As you can observe, good credit eliminates barriers that are otherwise present or available at a comparatively higher cost. However, is it necessary or feasible to go over the top and score an 850 – an idea which seems inconceivable to most of the populace?
Disadvantages Of High Credit Score Credit score is a very important aspect of our financial lives that determines whether we will be accepted for credit or not.
An 850 credit score is the best score one can have under the FICO and VantageScore models of scoring. It means nonexistence of any imperfection on the credit history and non-delivery of any payment even for a single day. However, while it might seem that you should stop at nothing less than perfect credit, there are some downsides to having credit that is too perfect:However, while it might seem that you should stop at nothing less than perfect credit, there are some downsides to having credit that is too perfect:
Diminishing Returns. The improvement in credit rates has diminishing returns once you get to the higher brackets, say 760 and above. For example, getting 790 will not help you get significantly better mortgage rates or credit card approvals than getting 760. However, if there is an attempt to move further up then that entails more effort.
It’s too much work to maintain the relationship and I wasn’t enjoying it anymore. Because even one small credit slip up can reduce your score by 20 or 30 points once your score is very high, it is likely that being a perfect 850 credit requires daily monitoring. Is it reasonable to devote a significant amount of time to repairing small problems that do not affect your bottom line?
Higher Chance of Fraud. However, consumer credit reports with scores at the ultra high range can sometimes be vulnerable to identity theft. They are almost the perfect dossiers for fraudsters to use in taking over and using to open accounts. That is why it is beneficial to keep your score a little bit lower and avoid increasing your chances of such an outcome.
Overspending To Impress Lenders. Individuals with perfect credit feel compelled to use credit cards responsibly and never have balances. However, this means not being able to earn points and bonuses that need purchases amounting to thousands of dollars. It also looks suspicious if you apply for more credit cards you may not really need simply to make yourself look credit worthy.
Appearing Less Financially Stable. What other groups have traditionally had a perfect credit rating? People deep in debt. It is evident that consumers with huge balances and those who are over their heads in credit must pay all their bills on time in order to keep on being able to borrow more. Some lenders may consider individuals with 850 scores as high-risk applicants.
As you can observe, there are disadvantages to having an ultra-high credit score. They demand much attention and still offer minor use over a somewhat lower distinct figure somewhere around 760 or 770.
What Is The Best Credit Score That Any Individual Is Supposed To Achieve?
Thus, taking into consideration all the aforementioned advantages and disadvantages, what credit score is most beneficial to maintain the optimal balance between risk and reward? There is a consensus among the experts in the consumer credit that the range is between 760 and 780. Having scores in this range will enable you to access the best loan and credit card interest rates. However, they do not necessitate the same level of close scrutiny as the higher scores do. There can be some margin where you will not be too punished for small mistakes. Here is a quick recap:Here is a quick recap:
760 to 780 – This is the golden credit score range It allows you access to prime loans and lower rates without overdoing it. It is not necessary to aim for an 850 credit score, or even to simply sustain it.
780 to 850 - This falls under the excellent band but shifts to the extreme where there are so many dollar benefits that it will be very costly to maintain. Score this high if you like the personal satisfaction but do not do it for the money.
740 to 760 – You’re still eligible for decent rates though not the lowest possible. It may come as a shock but lenders consider you to be a great credit risk. You can presumably make a more significant improvement with little effort.
The Takeaway
Despite this, it may be counter-intuitive for you to have or aim for perfect 850 credit at all times. Such scores offer very little in terms of tangible benefit, but they demand a great deal of effort to retain. It is also important to note that most consumers are in a favorable position if they have credit scores that range between 760 and 780. This allows you to be first in line for rates and approvals while maintaining a degree of permissible error that indicates minor credit slips in the future. If you don’t get a kick out of the personal competition, striving for the immaculate credit score is a lot more stressful than beneficial. Instead, concentrate on realistic financial behaviors such as living within our means and paying our bills on time rather than aiming for a certain credit score range. Pursuing record scores to the point of obsession generally takes one on a credit management merry-go-round that offers little in terms of tangible value for the time invested.
