If there is one thing that rests on the minds of most consumers it is the fact that, you need some form of credit in this world. Whether to make a small purchase or a large one, credit is important. In the land of credit and credit worthiness, there is nothing that seems more unobtainable than a perfect credit score. But what is a perfect credit score, and do you need one? And is it even possible to obtain a credit score that is considered perfect?
How do creditors rank your score?
To understand the differences between the numbers, let’s talk about how credit scores are ranked. You can use these numbers as a guide to get a sense of where your ranking is. If it happens to not be as good as you would like it to be, Empowering the Possibilities can help you understand your credit score and raise your number, over time. Indeed, it is possible to take you to a perfect credit score.
What do the numbers tell creditors?
A Credit Score between 300-579 is considered very poor credit. For applicants seeking credit with this rating, he/she may be required to pay additional fees or make initial deposits. Even worse, someone within this range may often be overlooked and not approved for any credit. It is reported that some 16% of Americans fall within this credit score range.
A Credit Score between 580-669 is considered fair credit. A “subprime borrower” is the term used to identity someone whose credit falls within this range. According to Investopedia, if your credit score falls in this range, lenders will see your application as a relatively high credit risk. To lenders, these numbers can suggest that your account has several negative factors and insufficient activity to make a decision in your favor. This range makes up about 17% of American credit applicants.
A Credit Score between 670-739 is considered good credit. According to lenders, only a small amount of borrowers in this range are likely to become delinquent. Some 21% of Americans are within this range. A borrower within this credit score range is considered a safe credit risk.
A Credit Score between 740-799 is considered very good credit. Creditors feel confident to lend borrowers who are within this range. They see applicants as less of a risk whose scores indicate very good credit. Twenty-five percent (25%) of Americans have credit scores in this range. In addition, borrowers within this range will be offered significantly better rates from their lenders. The less risk you are perceived to be, the better rates you will receive.
A Credit Score between 800-850 is considered to have exceptional credit. Interestingly, around 21.8% of credit applicants are within this range of credit, and since 2018 that percentage has been rising.
Considering this growing percentage, it should encourage you to know that exceptional credit is achievable. You just need to take the right steps.
These applicants with exceptional credit will be offered the best rates from lenders, and they are seen as the least risk when borrowing.
What factors influence your scores?
In our recent blog on the three types of credit, we discussed the factors that influence your credit score. To summarize briefly, the factors include payment history, amount of debt owed, and the amount of credit inquiries received, to name a few. You can read that full blog here to learn more.
Once you understand how your credit score is impacted, you will have the awareness needed to begin building up your credit toward a perfect credit score.
Well, that is, if you even want a perfect credit score.
Do you want a perfect score?
To achieve a credit score of 850 would mean you have reached the pinnacle of credit worthiness. Sure, there may be some “bragging rights” that come with it. After all, to get a perfect score is no easy feat. But it is not to say that not having a perfect score will bar you from achieving your financial goals. In fact, there may not be much difference in credit worthiness when ranging between a score of 800-850.
The benefits of a perfect score
With a perfect credit score there are some strong signals being sent to your creditors. Typically, a perfect score means you have a long credit history. Your credit history accounts for 15% of your score. By long, the average history ranges from 20-30 years for a perfect score.
It also means you have very low or zero balances on all your credit cards. When advising our clients, we often emphasize the importance of their mindset.
The right mindset helps support the discipline and action needed to reduce your credit balance. There are some excellent strategies for reducing credit card debt. You can learn more about how to reduce credit card debt in our blog here.
To put it simply, your borrowing capacity increases with a perfect credit score.
With this score, you will more easily qualify for a personal loan. These types of loans are often used to pay for major household items, to cover or consolidate debt, or to pay for medical or educational expenses.
To repay personal loans, borrowers are given fixed amounts to repay over a pre-determined period of time.
Additionally, with a perfect credit score, you may often receive lower rates on lines of credit, loans, additional credit cards, and even on mortgages.
In the eyes of creditors, individuals with an 850 credit score are seen as low risk for defaulting. Want to learn more about some of the benefits? The online, personal finance resource, thebalance.com lists 9 benefits of having a good credit score.
You can achieve a perfect credit score
A perfect score may not be absolutely necessary to receive ideal rates on mortgages or loans. When you bring your credit up into the very good range, or better, you will most likely see an improvement in the rates offered when seeking credit.
If these benefits appeal to you, then there is good news is. It is very much possible to achieve a perfect score. As you have learned, there are considerable benefits of an exceptional credit score. Even more, we hope you realized that increasing your credit score is completely within your control.
Step by step, by making one disciplined decision upon another, it is possible to reach your financial destination. Empowering the Possibilities can help you assess your current credit, and develop a plan to improve your credit score. Whether your goal is for a perfect score of 850, or simply to improve your credit overall, we can help you.