Before explaining how you can get an 850 credit score, it is important for you to understand that having a score of this magnitude doesn’t really matter. While it doesn’t really make sense and it’s probably not really worth the effort, one of the most common questions is “How Do You Get a Perfect, 850 Credit Score”? Before giving you the strategy, let’s examine the variables that impact your credit score and how you can optimize around it. Your credit score is based on six factors, utilization, payment history, derogatory marks, average age of accounts, total accounts and inquiries. This is basically an algorithm that you must learn to optimize in order to get a perfect, or even decent, credit score.
There are a number of free ways to examine your credit report. If you haven’t checked your credit score in a while, go to AnnualCreditReport.com to get a free copy of your report. If you have an American Express card, a Discover Card or a Citi Card, they offer a free online portal. Another option is to create an account on Credit Karma. This is a free online and easy way to get your credit score and see how issues impact your score. Each of these free options allow you to check your report without experiencing a hard inquiry to check your score, meaning that you can see how different factors impact your score every single month.
The following are the six factors that affect your credit score and the percentage impact:
- Utilization makes up 30% of your credit score
- Payment history, as well as derogatory marks together, make up 35%.
- Average age of accounts make up 15%
- Total accounts make up 10%
- Inquiries make up another 10%
If your goal is to get an 850 credit score, you will need to have an excellent score in all of these categories. In this blog, we are going to go through each of these items to see how you can optimize around it or beat the algorithm. Again, this is incredibly complex, but it can be done.
Below is a graph that we’ve provided to display the credit utilization break-downs. It is important to stay within the 0 to 9% range for excellent. You can do this quite easily if you are willing and prepared to pay your cards and other credit accounts off before they are due. Let’s say you have a credit card that has $500 credit limit and your statement ends at the end of each month, so on the 31st or 30th of each month. If you wait for your statements before paying off the card, then your utilization is going to be really high. So, if you spend $250 in the month and if you wait until that date to pay it off, then your statement is going to be 250 divided by 500. This means that you have a 50% utilization. The best way to lower your credit utilization without having to change your spending behavior is to pay off the card before the statement gets to you. For example, if your statement is due on the 30th, you can pay off nearly the entire balance on the 20th and will be get the benefits explained above. When the statement closes, you will have a near-zero balance. Instead of paying the entire balance, you should leave a $1 balance because this will help with your payment history category.
The next factor is payment history. Getting a perfect score in this area is really easy if you haven’t made any mistakes in the past. However, it is hard or will take some time, if you have missed payment or have late payments. This will require that you climb your way up from a bad situation. As long as you pay off at least a minimum balance or make appropriate payments on your installment loans or other debt, then you’re going to make the most of this category. If your goal is to get an 850 credit score or just to have a good credit score, this is one of the most dangerous categories. It is quite easy to mess yourself up in this area and have it adversely impact your score in the long-term.
While issues like credit utilization or any of the other topics can be fix it quite easily, this area can have a detrimental impact on your score. If you miss one payment, your score will be negatively impacted. It is hard to recover and will take some time. Remember, the calculation to improve your on-time payments is on time payments divided by total number of payments. Therefore, if you have a lot of cards or installment credit and if you miss one, then it’s a lot easier to recover just because you will have more on time payments than late one. However, if you only have one credit card, it’s quite easy to mess this up.
The next three categories are directly related to the other. Therefore, it is easy to explain all of them together. With average age of accounts, the longer you have an account, the better. So, in order to get a perfect 850 credit score, you should aim to have nine plus years of credit age to get an excellent score. So if you have a card that is two years old and a card that you recently got, or zero years old, your credit age would be two plus zero divided by two or one year.
The next item is total number of accounts. Twenty-one or higher is excellent and 11 to 20 is good. This factor is quite surprising because most people think that your credit score suffers if you have more credit. However, the opposite is true. You are viewed as more responsible if you have more credit and you have both lower utilization and pay them properly. Therefore, the more the better, but with proper utilization and payment.
The final category is credit inquiries, specifically hard inquiries whenever you actually apply for credit. There is a massive difference between soft inquiries and hard inquiries. Soft inquiries are typically used by agencies when they are not issuing you debt. For example, if you are renting a house and the landlord wants to run a credit check, that would be a soft inquiry. Additionally, if you want to check your credit score, that would also be a soft inquiry. These inquiries have no impact on your credit score.
However, If you apply for a mortgage or car loan or credit card, that would be a hard inquiry because creditors are examining your credit report to determine whether you qualify for additional debt or to create debt. These inquiries have a limited impact on your score after the first year and no longer impact your score after the second year. As a matter of fact, it drop off after the second year. So, for example, if I applied for 20 forms of credit, I will have 20 hard inquiries. After the first year, those inquiries no longer play a role and year two it’s like they never happened at all. So, you can optimize your inquiries to make sure that you do well in the other categories, while in two years they’re not even going to be there.
So, I hope that this information was helpful and shows you how to attain a perfect credit score. As you can see, getting a perfect score is incredibly complicated and requires a great deal of work. However, if you wish to attain a perfect 850, all of the work it worth it.
We have develop an absolute FREE Course that you can take to improve your credit score. Click on this link to get started!