Your credit score is the 3-digit number representing your credit history -A detailed record of how you manage your financial obligations: the type of debt, the total amount of debt, length of credit history, number of credit lines, repayment patterns, and any new lines of credit. Financial institutions use your credit score to weigh the risk of being your creditor.
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What’s the Highest Credit Score Possible?
So what is the highest credit score, and how high can it go?
The most commonly used credit scoring ranges run from 300 to 850- with 850 being the best credit score. This figure represents the highest Transunion, FICO, and Equifax credit score possible.
What Is a Very Good Credit Score?
Statistics suggest that just over 1% of Americans have a top credit score in all three agencies. According to VantageScore, 63% of Americans have a credit score of 700-850, with 8.4% of people having a score below 550. While you may not achieve a perfect credit score, a good credit score will grant you access to preferential rates and premium financial products.
FICO credit scores are classified as follows:
- Exceptional: 800-850
- Very good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300-579
A rating of 670 or over is considered a very good credit rating.
How to Improve Your Credit Score
Even though it is theoretically possible to achieve a perfect score, most people don’t. Here are ways to improve your credit score.
Making Payments on Time
According to FICO, your history of making payments on your loans accounts for 35% of the overall credit score. If anything, do not underestimate keeping up with your payments. Never missing a payment improves your score. Creditors usually report your late payments to the credit bureaus after 30 days. Late payments can stay on your record for up to seven years. During which you will find it challenging to get new lines of credit.
Set up automatic payments if you will be out of town or if you are just prone to forgetting to make your monthly payment.
Be Financially Responsible
Create a reasonable monthly budget and cut out nonessential expenses. It will help you practice responsible spending. This financial foundation will help you make better decisions regarding borrowing and repaying your debt.
Keep an Eye on Your Credit
Your credit utilization ratio accounts for the next 30% of your credit score. A credit utilization ratio represents the amount of credit you have compared to the amount you use. Do not run up your cards. Instead, ask your creditor to increase your credit limit. If you have multiple cards, ensure you spread out your expenses evenly. Ensure your credit regularly, and you will be able to keep your utilization closer to zero%.
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Build up Your Credit History
Your credit history makes up 15% of your credit score. Make sure you diligently keep up with your loan and credit card payments. This way, you build up your record. And the further back it goes, the higher your score will be.
Don’t Cancel Your Credit Cards.
You might be tempted to cancel a credit card if you don’t regularly use it. Don’t! Holding a credit card for a long period will positively affect your credit history. Consider setting up automatic billing for small subscriptions or charging it with smaller expenses. Just don’t forget to make your payments.
Monitor for Errors
You can get a yearly credit report from agencies for free. Check the report for mistakes if your score is lower than it should be.
Benefits of Having a Great Credit Score
A high credit score might mean enjoying everything from cash back on purchases to low-interest rates. If you are working on having a better credit score, here are a few reasons to keep going:
Better Car Insurance Rates
Your insurance provider may use your personal finance behavior to judge your level of responsibility. They then decide whether to approve your application, how much premiums to charge you, and whether to renew your policy.
Lower Interest Rates
A higher credit score gets you lower interest rate loans. Being able you secure a student loan, mortgage, personal loan, or credit card at better rates saves you money in the long run.
Higher Credit Limits
Higher credit scores read as a good risk to lenders. They may upgrade you to better products because you have bargaining power. For example, banks may be willing to lend you even bigger loans, and credit card companies may be willing to raise your limit.
More Housing Options
Landlords prefer to check your credit history before renting the house to you. A record of on-time payments will make you a more attractive tenant. Otherwise, you will be required to part with a higher deposit or agree to a shorter lease. The same applies when applying for a mortgage. The higher your credit score, the better your chances of getting a great deal on your mortgage loan.
Waived Security Deposits
A poor credit score might mean paying a security deposit before your utilities like electricity, internet service, or cell phone are turned on. A utility company may legally have someone be your guarantor if you don’t pay your bill.
Accessing these services becomes easier when you have a good credit history and keep more dollars in your pocket.
Better Employment Opportunities
As part of the background check, employers seek out your credit history. A good credit report indicates a history of financial responsibility. Even though getting a job with a low credit score is possible, many employers consider it a red flag. Therefore, checking your credit report before beginning your job search is good practice.
Getting the highest credit score is a great goal to aspire to. However, very few people have perfect credit scores. So don’t beat yourself up if you can’t achieve it. Instead, focus on following the steps mentioned above and creating better habits. Eventually, you will build a highly ranked credit score.