A credit score is a number you may not think about often, but it’s a key factor in the home buying process. You may have often heard that a high credit score will help you get the best rates and terms on your mortgage, showing your lender that you have a great track record with handling your debt. But how high is “high enough” and how high can a credit score go?
We are always available to talk with you and provide professional advice to help you prepare for buying a home. Contact us any time to talk about becoming the strongest applicant you can be, and keep reading to find out how high a credit score can go and how to get yours there.
How Credit Scores Work
Your credit score is a 3 digit number that will place you into one of 5 categories. The FICO and VantageScore models, the two most widely used credit scoring systems, both operate on a scale that ranges from 300 to 850. These scores are categorized into different ranges, each indicative of a borrower’s credit health:
- 300 – 579: Poor
- 580 – 669: Fair
- 670 – 739: Good
- 740 – 799: Very Good
- 800 – 850: Excellent
It is extremely rare to see a credit score of 850. While it is technically possible, anything over 800 is considered to be “perfect” credit.
What Does It Take to Get an 850 Credit Score?
Even if you don’t have an 850 credit score, aiming for it will set you up for success. To boost your credit score as high as possible, begin by understanding how credit scores are calculated.
Payment history is the most influential factor in your credit score, determining about 35% of the score. Credit bureaus look at payment history because it reflects your track record of making payments on time. Consistently paying bills by their due dates contributes significantly to a high credit score. Even just one late payment can lower your score, so set up automatic payments or alerts on your phone to make sure you never miss a payment.
Your credit utilization rate is another major factor, accounting for roughly 30% of your credit score. This factor measures the ratio of your current credit card balances to your credit limits. Maintaining a low credit utilization—typically below 30%—demonstrates responsible credit management and positively impacts your score. Make sure that your credit limit is as high as it can be, not so that you can leave a higher balance on the card but to naturally boost your utilization rate.
The length of time your credit accounts have been active also plays a role in your score, making up 15% of the number. A longer credit history provides a more comprehensive picture of your credit behavior and can positively influence your score.
New credit accounts for about 10% of your credits core. Opening multiple new credit accounts in a short period can be viewed as a risk factor. This category considers the frequency of new credit inquiries and recently opened accounts.
To earn an 850 credit score, you would need to be nailing it in all categories. That means zero missed payments, no balance on any of your credit cards, and along credit history where there are no recent points on the timeline showing many new accounts opened.
Boosting Your Score Toward 850
When you realize what it takes to have an 850 score, you may be ready to get to work. There are no real shortcuts to getting a great score; it takes consistency over time in areas like these:
On Time Payments
Consistently making on-time payments is the bedrock of a high credit score. Set up reminders, automate payments, or utilize budgeting tools to ensure you never miss a due date. If you have a history of missing payments or a tendency to forget things, find a system that does the work for you so that you can’t mess it up. If you have a partner and you share finances, consider having the more consistently on time partner handle these payments. Nearly all debt accounts should have the option for automatic payments, and may even offer incentives if you choose this option.
Manage Utilization Rates
Keep your credit card balances low in proportion to your credit limits. Aim to maintain a credit utilization ratio below 30%, and pay attention to individual card balances as well as the overall utilization across all your credit accounts.
There are basically two ways to lower your utilization rate: paying down a balance or increasing the credit limit. If you are carrying any balances, make a plan to lower the balance to below 30% on all accounts. This can involve a combination of making payments and asking for a credit limit increase.
Long Term Relationships
The length of your credit history matters. While you can’t change the age of your oldest account, avoid closing old credit cards, as they contribute positively to the length of your credit history. You may think that once you have paid off a credit card and don’t want to use it anymore, you should close it. However, this is actually bad for your credit. Instead, just put the card away if you don’t want to be tempted to use it and keep the account open.
Diversify Your Types of Credit
While not the most heavily weighted factor, having a mix of credit types can positively impact your score. Consider maintaining a healthy balance between credit cards, installment loans, and other credit accounts, if you do need to take on any new debt during the time you are working on your credit score.
Limit New Credit Inquiries
Be cautious about opening multiple new credit accounts within a short timeframe. Each hard inquiry can have a minor impact on your score. Apply for credit only when necessary, and space out credit applications when possible.
Monitor for Errors
Stay vigilant by regularly checking your credit reports for errors or discrepancies. Address any inaccuracies promptly, as they can negatively impact your score. You can easily view credit reports through various free websites, and can look for any negative reports to make sure they are accurate. Mistakes can happen here, like any other industry, and they can have a devastating and undeserved effect on your credit score.
Finally, while aiming for an 850 score is admirable and will likely only benefit you, it’s important to be realistic with this goal. Very few people will actually achieve an 850 score, and you really don’t need one to be successful. Any score about 800 is going to place you in the top category of borrowers.
Ready to learn more about buying a home? Contact us any time.