It is common knowledge that credit scores are crucial when applying for loans and other forms of credit, but it is also important to understand what the perfect score is.
A credit score of 850, the best you can attain, is a perfect credit score, especially on the FICO or VantageScore scales, which go from 300 to 850. However, it is important to emphasize that you don’t necessarily have to boast an ideal 850 FICO score to qualify for credit and enjoy the lowest possible interest rates. Here is a brief overview of credit scores and what it means to have a good credit score.
Few people know what a good credit score is
It is not compulsory to meet certain numerical credit score in order to be classified as having good or excellent credit. Generally, credit scores fall into the following ranges:Generally, credit scores fall into the following ranges:
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800-850 – Exceptional
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740-799 – Very good
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670-739 – Good
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580-669 – Fair
- 300-579: Very Poor
It is stated by FICO that credit scores are somewhere between 680 and 719. Therefore, we can identify that the borrowers with credit score of 740 and above are considered to have good credit and the higher scores attract better interest rates. However, once one gets to the 800s, that is very good ground for borrowing even if it is not perfect.
Why the Use of 850 Is Not Required for the Best Rates
Credit score is a very crucial factor in determining whether one will be approved for credit or not or whether he/she will be offered low interest rates on loans and credit cards. Here are a few reasons why:Here are a few reasons why:
- Most lenders have cutoff scores: Majority of the lenders nowadays only demand a minimum credit score in the low seventies in order to qualify for the better rates on credit cards and loans. You can then argue that after getting to certain number like 740 or 760, it is then insignificant to gain more points.
- Exceptional borrowers get the best rates: Most of them use their lowest interest rates for only those borrowers with almost perfect credit scores, often ranging from 700 and above or even 800. They are not influenced by small differences in scores as long as they are in that territory.
- Scores fluctuate slightly: That means that your credit scores can vary up or down on a month to month basis by 10-20 points depending on your credit reports and models used to calculate your scores. Thus, an ideal score of 850 is not a long-lasting score at all It is therefore important to note that an 850 is not a lifetime score.
- Excellent credit has room for minor dings: In other words, it is possible to have sound credit with a rating that is not perfect. Low credit scores imply that your credit reports and scores are already very good in terms of credit management.
Perfect scores are very rare across most academic subjects and often are not needed in people’s daily lives, but under what circumstances might a perfect score be important?
In some cases, it pays to push your credit score as close to 850 as possible:In some cases, it pays to push your credit score as close to 850 as possible:
- Seeking extremely large loans: When the borrower wants to borrow money for a jumbo mortgage above $500,000, a very large business loans or a credit line, higher score shows less risk in the credit.
- Boosting marginal scores: If your credit score is in between these two ranges, for instance, 758, it would be easier to obtain a better rate if it goes a little higher, such as 760.
- Qualifying for top status: Some credit card companies or lenders provide what they term as Platinum customer status to customers with high scores, which entails such privileges as elimination of certain fees.
- Perfect score bragging rights: Achieving a perfect 850 FICO score is both a privilege as well as a rarity which is why becoming a member of the perfect 850 credit score club is pretty cool. Today, a mere 1% to 2% of Americans have a credit score of above 830.
Credit scores have become very important in our day to day lives especially when it comes to financing or even employment.
It is therefore important for credit seekers to understand that they can easily attain a good or sometimes an exceptional credit score if they stick to the right credit practices for some time. Here are a few tips for boosting your credit:Here are a few tips for boosting your credit:
- Pay all bills on time: This one is perhaps the most apparent because it is the most influential when it comes to calculating your credit scores. It is reasonable to state that even a single payment that was made 30 or 60 days late to pay can negatively impact scores. Paying should be as easy as possible, so set up a form of recurring payment or notifications regarding payment dates.
- Keep credit card balances low: The more the balance is, the worse is the score and lenders have a sign of high risk while less balance is good for the score. Ideally, one should use less than 30 percent of the credit limit provided for each card.
- Check credit reports for errors: Missed payments and other mistakes on your credit reports can work against you and reduce your scores. Any discrepancies that are identified should be challenged with the credit bureaus.
- Limit credit inquiries: Every time you apply for credit, which by the way is another way in which credit repair companies are very useful, is going to cost you a few points. One should only use credit cards where necessary and should avoid frivolous credit card usage.
- Ask for credit limit increases: Greater credit limits help maintain lower balances relative to the credit limit and, therefore, increase the use of credit.
Maintaining good credit is the only way that over time you will start realizing improved credit scores. What makes it great is that you do not have to aim for that 850; you can aim at something above 700 or 800 and that is exceptional.
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