What is a perfect credit score, and how can you get one?

What is the perfect credit score, and how can you get one? Having a good credit score can increase your chances when buying a home or taking out a loan. Read on to learn more about achieving your perfect score.

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One little number affects your ability to borrow money, rent an apartment, and buy a home: your credit score. Those 3 digits can make or break your financial life, so it makes sense that you'll want to ace this assessment of your creditworthiness.

Read on to find out what a perfect credit score is and how to get it, and why getting the highest possible credit score might not be as important as you think.

A perfect credit score is 850

Credit scores range from 300 to 850, with a perfect score falling at the very top of the range.

Your financial history determines your score. Credit scoring agencies like Experian, Equifax, and TransUnion look at your past financial behavior and assign a score that gives lenders and idea of how risky you are as a customer. If you've defaulted on debts, consistently paid bills late, or always max out your credit cards, you'll get a lower score. Being responsible with credit earns you a higher score.

The average American credit score

The average American credit score is 675, according to Experian. People with subprime credit scores—below about 670—are more likely to default and will receive loans with higher interest rates and less favorable terms. In some cases, they might be denied credit altogether.

Prime borrowers, on the other hand, are far less likely to have trouble paying back what they borrow. And at the very top of the heap are the "super-prime" customers—those with perfect, or near-perfect, credit scores. For these people, getting credit is easy. They'll be offered the lowest interest rates and access to credit cards with the best perks.

Here's another thing to keep in mind about credit scores: You don't have just one. You actually could have dozens of different credit scores. Scores can be calculated using different credit reports and different scoring models, which can result in slight variations.

How to get a perfect credit score

If you're in pursuit of credit perfection, it's not a mystery how to get there. Your credit score is determined based on the following, according to FICO:

  • Payment history: 35% of your score is determined by your payment history—whether you've paid past bills on time.
  • Amount you owe: 30% of your score is based on how much you owe. But just having a lot of debt—like a mortgage—won't sink your score. Instead, credit scorers look at the kind of debt you have and how much of your available credit you've used. Have a lot of revolving debt (i.e., credit card debt) and always being at or close to your total credit limit works against you.
  • Length of your credit history: 15% of your credit score is based on the length of your credit history. Credit reporting agencies look at the age of your oldest account, the age of your newest account, and the average age of all your accounts. The longer your history, the better.
  • Credit mix: 10% of your score is based on your mix of credit. Diversity helps here. People with a mix of installment accounts, like a student loan or car loan, and revolving credit, like a credit card, tend to get higher scores.
  • New credit: 10% of your score is based on whether you've recently applied for credit. Applying for a lot of credit in a short period of time can hurt your score, especially if you don't have a long credit history.

Work on improving these 5 areas, and you'll be able to improve your credit score.

Should you aim for a perfect credit score?

Only 1.5% of all consumers in the US have a perfect credit score, according to the Washington Post.* The people who get to that numbers have a "spotless credit history," a FICO spokesperson told the paper. They've been using credit for years, have never had a debt fall into collections, don't often apply for new accounts, and use only a small fraction of their available credit.

So what if you're a little less than perfect? That's OK too. A score in the 800s puts you in the top tier of borrowers. The main benefit of a perfect 850 credit score is bragging rights.

"There is no incremental value to having an 850 score over, say, a 760 or 780," credit expert John Ulzheimer told Bloomberg.

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Sources:
*The Washington Post, How I got a perfect 850 credit score, June 28, 2018.
Article copyright 2018 by The Cheat Sheet. Reprinted from the October 18, 2018 issue with permission from The Cheat Sheet.
The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.
This reprint is supplied by Fidelity Brokerage Services LLC, Member NYSE, SIPC.
The third-party provider of the reprint permission and Fidelity Investments are independent entities and are not legally affiliated.

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