A FICO credit score can determine a very large number of decisions in your life. Where you live, what you drive, where you work and where you and or your kids go to school can depend on a 3-digit magic number. The range of scores begins at 300, for the individuals in life that have declared bankruptcy 13 times in a month, and ends with a perfect score at 850, where banks pay you to borrow their money (Well, not really). A perfect or near perfect credit score belongs to an elite few. According to myFICO.com, about 13% of FICO scores fall in the range of 800+, while only about 1% have a perfect FICO score of 850. If you’re wondering what a good credit score is, that is generally anything over 700.
So what do the credit files of an individual with a perfect credit score look like? Although the FICO formula is a well kept secret, with enough data we can stitch together what it takes to achieve a 800+ FICO score. A FICO credit score is generated based primarily on five criteria outlined below.
We took this information and scoured the Internet for information on what it takes to achieve perfection. With the data in hand, let’s take a look at this factors and how each of them can help you achieve an excellent credit score.
Payment History – 35%
It’s extremely important to pay your bills on time. While most creditors won’t report a late payment unless it is 30 days past due, there could be exceptions that even if you are a few days late you could be reported to the credit bureau. Usually there are four breakdowns of late payments: 30, 60, 90 and 120+ days late can hurt your credit score for years, so do your best to make at least the minimum payments on time each month.
- A perfect credit score would show, on average, no late payments in the last 7 years on any debt
- A credit score of 800+ generally will show no late payments over the past four years
Amounts Owed – 30%
Just because you have access to debt does not mean you should gobble up as much as you can and as fast as you can. A large chunk of your FICO score is based on the amount of money you owe to your debtors compared to the total amount of available credit you have. Known as “utilization,” this is simply the ratio of your debt to credit limit. For example, a credit card with a $5,000 balance and a $10,000 credit limit would have a utilization of 50% (5,000 / 10,000). Thus, maxing out your credit cards will lower your credit score. The smart move would be to have 30% or less of your credit limit used. The FICO formula also looks at the number of accounts with balances, proportion of installment loan (e.g., card loan or school loan) amounts still owed, and amount owed on specific types of accounts (e.g., revolving credit, installment loans).
- For revolving accounts (e.g., credit cards), those with a perfect credit score typically have a very low utilization rate of less than 10%.
- For installment loans, high credit scores typically go to those who have paid down at least 35% of the original balance.
Length of Credit History – 15%
Good things get better with age, and your credit score is no exception. It’s very difficult for a young professional to have a super high credit score because they only recently began opening credit accounts and borrowing money.
- Those with perfect credit opened their first account on average nearly 20 years ago.
- The average account age was as much as 12 years, and 10 years of positive history is generally required to get a credit score above 800.
New Credit – 10%
How often in the last 24 months have you applied for credit and been denied? If the answer is a lot, then you’re credit score is on the way down. Applying for credit consistently shows that you probably need the money ASAP, which tells borrowers that you’re a risky investment. Sometimes, applying for multiple lines of credit is necessary, for example if you were looking for a good credit card offer.
- A perfect credit score should have no more than 2 inquires over the last 24 months.
- Many with perfect credit have had no inquires in the last 12 months
- Credit scores look at the types of accounts opened, and those with high credit typically have a demonstrated history of using different types of accounts responsibly
Types of Credit Used – 10%
When you think of a diversified portfolio, you probably think of stocks and mutual funds. This ideology should also be applied to your credit. Having different types of debts is again viewed as responsible and if possible, should be utilized. Credit Cards, Retail Accounts, Installment Loans, Mortgages and Consumer Finance Accounts are just a few examples of the types of credit the FICO score will evaluate.
- Those with a perfect credit score typically have about six accounts currently paid as agreed
- While there is not a set number of open accounts, too many accounts can eventually bring down your score
Don’t be discouraged if your score isn’t where you want it to be right now. Set a few small short term goals and make sure to check your credit score often to follow you’re progress. There’s a limitless number of free trials available out there that will allow you to check your credit score for free. Here are two great ways to get your credit score for free:
- GoFreeCredit.com: Sign up for a 7-day free trial that includes credit scores from all three major credit bureaus. Once the free trial period expires, the cost is $19.95 a month to continue the service.
- TrueCredit.com: TrueCredit also provides a 7-day free trial that includes all three major credit bureau credit scores. $14.95 is the cost of this program after the trial expires.
Published or updated March 5, 2013.