What does an exceptional credit score look like and what does it take to get there? Under both the FICO® and VantageScore systems, you can aim for a three-digit number: 800.
FICO and VantageScore are the two companies that compile your credit score based on your credit history, using a range of 350 to 850 points. VantageScore and FICO weigh their criteria slightly differently, so they may produce different numbers. They each have five different categories of credit with unique definitions.
For the purposes of this discussion, we’ll focus on your FICO score, which is the better-known model and the one more widely used by lenders when they decide whether to approve a loan application and what your interest rate will be for paying it back. In general, the better your credit score, the better your chances of obtaining a loan and the better the terms you’re likely to receive.
Under the FICO credit score system, an exceptional credit score range is between 800 and 850. About 20% of borrowers fall into that category. Here are the five categories:
Whether you’re applying for a car loan, personal loan, credit card, or any other form of credit, you want the highest credit score possible. But, practically speaking, getting a perfect credit score is extremely rare, and it’s not worth much more than a score anywhere in the “exceptional” range.
That top category, an excellent credit score, is where you want to be. The question is, how do you get there?
FICO considers five factors in determining your credit score, in descending order of importance: your payment history, amounts owed, length of credit history, new credit, and your credit mix (having different types of credit). It then arrives at a number that’s your credit score.
From your end, therefore, there are five things you can do if you want to improve your credit score and reach the “exceptional” level, though it will likely take time. In a nutshell: Get an 800 credit score by paying on time, keeping low credit balances, spending below your means, limiting credit inquiries, and monitoring credit reports.
The most important thing you can do to improve your credit score is to pay your bills on time. In fact, it’s weighed the same all by itself as the bottom three factors combined.
Late payments can damage your credit if they’re more than 30 days past due, at which point they become delinquent. That’s when they first get reported to the credit bureaus. They’ll get reported again if they’re 60 days past due, and a third time if they’re 90 days past due.
Delinquent bills affect your credit score most significantly when they’re first reported, so your best course of action is to avoid them altogether. They’ll have less of an impact over time, but they’ll still stay on your credit report for as long as seven years.
Medical bills are a little different. The three national credit bureaus give consumers a 180-day grace period before adding medical debt to their credit reports. You therefore have six months to pay a medical bill before it affects your credit history. Also, unlike other forms of debt, medical bills don’t accrue interest.
One thing you should avoid is transferring medical debt to a credit card just to get it “paid off,” because you’re really not paying it off at all. You’re just transferring it from an account that doesn’t accrue interest to one that does, and from one that only appears on your credit report after six months to one that will appear after 30 days if you’re late with a payment.
Missing payments on student loans can also hurt your credit. If you have a federal student loan, you may qualify for forbearance or deferment to temporarily suspend payments. Another option to consider is an income-driven repayment plan, which can reduce your monthly payment. If you’re having a hard time making payments on a private student loan, contact your lender and see if you qualify for a hardship program or temporary grace period.
The one thing you shouldn’t do with any bill is to simply ignore it, because it will go on your credit report, resulting in higher interest rates and fewer loan approvals when you need them.
The second most important thing you can do to maintain a good credit score is to keep low balances on your credit cards. This is because the amount of debt you’re carrying accounts for 30% of your credit score, just slightly less than your payment history. Together, these two factors make up nearly two-thirds (65%) of your credit score.
To determine where you stand, you want to compare how much you owe with your credit limit. By doing so, you’ll arrive at what’s called a credit utilization ratio. If you have a credit limit of $5,000 on a credit card, for example, and you’re carrying $2,500 worth of debt, that means your credit utilization rate is 50%.
Maintaining low credit card debt, however, isn’t the same thing as maintaining a zero balance. If you’re not using your card at all, you can’t make payments to show you’re responsible with your debt. It might indicate you can’t afford the credit you have, or, for whatever reason, that you’re just not using it.
It’s a good idea to keep the ratio below 30% on your credit card accounts (which would mean 70% available credit), and if you want to have an exceptional credit score that will get you exceptional credit, you probably need to keep it in the single digits: below 10%.
Spending within your means isn’t just a good budgeting tactic, it’s also a way to build good credit.
If you’re spending beyond your means and putting that money on credit cards, you’ll be putting yourself in deeper debt via compound interest, which is interest on top of interest.
If, on the other hand, you’re spending less than what you’re taking in, you can use whatever’s left over to pay down whatever debt you have. It’s also a great opportunity to pay off your credit cards in full every month if you only charge as much as you’re able to afford within that period.
This will keep you current on your monthly payments and help improve your credit score. The longer you can maintain a history of consistent on-time payments and low account balances, the better off you’ll be because the length of your credit history accounts for 15% of your credit score.
When you apply for credit, it will result in what’s called a hard inquiry or hard pull. This is a credit check done by a lender to determine whether to approve a loan application. Each hard inquiry will bring your credit score down a few points, so it’s best to only apply for what you need and can afford.
Applying for too much credit too often can bring down your credit score by making it appear as though you’re trying to access money through credit because you’re spending beyond your means. Trying to open too many new accounts in a short period of time is a signal to lenders that you may not be able to repay any new loans.
Credit card issuers are likely to decline your application, and all you’ll get for your trouble is a lower credit score. If you’re applying for a major loan, such as a mortgage or auto loan, it’s best to keep hard pulls to a minimum during the period leading up to your application. Ask yourself: Do you really need that new credit card? It may do you more harm than good.
Credit inquiries account for 10% of your credit score. But that only goes for hard inquiries. Soft inquiries, by contrast, don’t affect your credit score because they’re not done in conjunction with a credit application. Instead, they’re done strictly for educational purposes, such as when a potential employer checks your credit during the hiring process.
Unlike hard inquiries, which are done at your request, soft inquiries can be done without your knowledge or consent. An exception is a credit check from a prospective employer, which you must agree to. But again, soft inquiries do not affect your credit score.
One way to help maintain a high credit score (and avoid average credit or even bad credit) is to be aware of what’s on your credit report. You can do so by obtaining a free credit report once a year from annualcreditreport.com.
You can access a report from any of the three major credit bureaus: Experian, TransUnion and Equifax.
Unfortunately, not everything on your credit report may be accurate. Reporting errors do occur, and what’s worse, fraud and identity theft can cause your credit score to drop. A 2012 Federal Trade Commission study found that 5% of consumers had errors on their credit reports that might result in less favorable loan terms.
Errors can happen for a variety of reasons. Account numbers, Social Security numbers, or addresses might be incorrect. Payment dates might have been reported incorrectly. The same debt might be listed more than once. Balances might be off. Old accounts may still be on the books.
Fortunately, you can dispute such errors online, by mail, or by phone with the three major credit bureaus. Include supporting documentation such as canceled checks, deferment or loan discharge documents, bankruptcy paperwork, or police reports establishing that you’ve been a victim of identity theft.
Having a credit score of 800 will confer a number of advantages. You’ll be more likely to have loan applications approved with higher credit limits, and you’re likely to see lower interest rates as well.
For example, if you were applying for a $200,000, 30-year mortgage in 2016, a credit score of 760 to 850 would have gotten you a 3.27% interest rate and an $872 monthly payment. Compare that to a score of between 620 and 639, which would have netted you a 4.86% interest rate and cost you $1,056 a month.
The total cost of the first loan would have been just over $114,000, while the second would have ballooned above $180,000. That’s a substantial savings, and that’s what a high credit score can do.
You’ll also receive better credit card offers at lower interest rates (but again, be selective on which you choose to apply for, and limit your hard-inquiry requests).
There’s no single answer to how long it will take you to get an 800 credit score because it will depend on a number of factors, including your starting point and what’s in your credit report.
It generally takes six months to establish credit from scratch, and reaching the “exceptional” range will depend on consistent on-time payments (without past-due bills), a good mix of credit accounts, limiting credit inquiries, and keeping tabs on your credit report to guard against errors.
Paying your bills on time and maintaining low balances are the two most important steps you can take to get there quickly. But be patient, because the length of your credit history is the third most important factor.
A credit score of 800 can open up a variety of loan opportunities at low interest rates that wouldn’t be available to you with a lower score.
Far from being unattainable, it’s entirely within your reach if you’re diligent about monitoring your personal finances.
Make your payments on time, be selective about your applications, keep a low credit utilization ratio, and understand how credit works. Then you’ll be able to reap the benefits of lower interest rates and have the confidence that you’ll be approved for the loans you really need.
Lauren Bringle is an Accredited Financial Counselor® with Self Financial – a financial technology company with a mission to help people build credit and savings. See Lauren on Linkedin and Twitter.
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