Is it a bad idea for you to strive for the highest credit score?
We all know the cliché nothing is perfect and this especially holds true in credit scoring. Why? Because not only is a perfect credit score almost impossible, but trying to get one might actually harm your personal finances more than it will help! Credit scores are an area where you shouldn’t make perfect the enemy of good!
The best score?
What is a perfect credit score anyway? Well if you’re going by FICO, it runs on a 300 to 850 scale. So if your definition of perfection is 100%, then a perfect FICO score would be an 850 FICO. This has been the case for many years, as far as the FICO score is synonymous with credit score.
However, I must warn you that the vast majority of websites do not offer true FICO scores. Only two websites offer them, MyFICO and Equifax, both charging $19.95 and $23.95, respectively, just to check it once!
However you can get your real FICO score every month for no charge with these cards from Barclays and Discover card:
If you check your credit score with all other websites, they use a different type of score. The top and bottom number will probably be different but even if it does use 300-850 for the range, you can’t compare a non-FICO to a true FICO since the formula used in the calculations will be different.
For example, the second most popular type – VantageScore – runs from 501 to 990. Someone could get an 850 on that and if they didn’t understand that it was a different model being used, they would wrongly assume they have a perfect credit score.
The lesson? Make sure you know what type of score is being used! The only one you should really be concerned about is FICO. Read this post to understand why: What is a good credit score?
Types of credit scores
|Score type||Maximum score|
|Vantage Score (current version)||850|
|Vantage Score (old version)||990|
Is perfection even possible?
Okay so now you know what’s perfect, but is it even possible to achieve?
If you want to know how to get an 800 credit score it’s really not that hard. Sure, it won’t happen overnight, but as long as you have a few accounts and manage them properly, you can hit 800 in just a few years.
However, the higher your score goes the more difficult it gets to go higher (i.e. the law of diminishing returns applies). This is why someone can jump from say, 670 to 700 (30 points) in perhaps 3 to 4 months under the right circumstances. But jumping from 800 to 830 (also 30 points) may literally take you decades and even then, there’s no guarantee it will even happen. The reason for this is because the scores fall along a bell curve. Something along the lines of this…
A lot in the middle, but only a few on either sides of the spectrum.
How many are on the bottom? Well what we do know is that less than 1 out of every 15 people are lower than a 500 FICO credit score. That’s a pretty small percentage of the population, considering that it encompasses almost 200 points on the scale; 300 to 499.
How many are on the top? Or in other words, how many people have a perfect credit score? Well unfortunately, FICO doesn’t publicize the exact percentage of people with a given number. However they do periodically release information regarding what percentage of the population falls within a certain bracket.
As you see, around 18% of the population is between 800 and 850. Keep in mind that percentage can change, give or take a point, depending on economic conditions. But if you research the distribution numbers from the past ten years, you will see this top bracket continuously hovers around 17-18%.
So 18% are above 800, but how many of these people have a perfect 850?
FICO hasn’t said much about this over the years. However as recently as 2010, Craig Watts, a senior public relations manager for FICO, stated in an interview that about one million people do indeed have the 850 score.
Then what percentage has a perfect credit score? Well as of the last census (2010) the US population is 308,745,538. We don’t know precisely what “about one million” means (800k? 1.2 mil? etc.) but whatever the case may be, it’s safe to conclude that around one-third of one percent (0.33%) have this coveted number. In other words, about 1 in 300 people.
How to get a perfect credit score?
Use credit wisely and basically be an old geezer.
In a different interview with Craig Watts (from the Consumerist, 2010) Watts stated that “Typically people who score in the mid-800s have been managing credit for at least a couple of decades.” And mind you the mid 800s, although quite difficult to achieve, is still a lot easier than getting an 850!
In short, the age of your credit record has a major impact. And unlike other factors such as quantity and diversity of accounts, you can’t control how old they are. Like an aged fine wine, you can’t speed up the clock.
Is it a worthy and realistic goal?
Should you strive for excellent credit? Absolutely. But an 850? Probably not.
The truth of the matter is that once you are in the neighborhood of 780 and above, you will be treated the same as someone with an 800, 820, or even 850. All of you will face the same approval requirements and get the same interest rates. It’s like trying to become an ultra-marathon runner vs. being in good shape.
So why strive for absolute perfection? There’s really no logical reason to. In fact, it’s nothing more than a narcissistic endeavor. Worse yet, in doing so you might actually be doing more harm than good.
I heard from a man in the low 800’s who took out a car loan. Not because he needed it, as he could have paid cash. The only reason he did it was because he wanted another installment loan on his credit report. He chose to pay finance charges, just to try and better his 800+ score. Does that make any sense?
More frequently, I hear from people who say they will never apply for another credit card. The reason? They don’t want to decrease their average age of accounts by opening up a new card… even though they actually want a new card. If you’re getting a mortgage in 6 months that makes sense, but not just because you want to go from an 805 to an 808. Think how much money these sticklers are losing by not taking advantage of 5% cash back credit cards, all because they’re too afraid to open a new account. That’s kind of crazy.
This kind of obsessive-compulsive attitude about credit scoring can be counterproductive, and no doubt, and probably led to the phenomenon of selling credit scores to the public. Don’t drive yourself crazy reaching for a credit score that’s perfect, when you can be 50 points lower and enjoy the exact same benefits in terms of credit access and preferential rates. At least now you can get a free credit score on card from issuers like AmEx, Discover and Barclays – that way you don’t have to obsess and see how your score builds over time.
Last updated February 2017