Money

A Perfect Credit Score Of 850 Is Possible, But It Probably Doesn't Matter

Only 1.4% of the population that has a credit score has hit the top.

Lyn Alden recently accomplished something that few people have: She earned an 850 credit score.

The Atlantic City, New Jersey, resident, who provides market research to individual investors and financial professionals, achieved her perfect credit score three months ago, up from 841 in prior months and 832 a year ago.

A screenshot of Alden's FICO score, which is based on TransUnion credit reporting data and provided by Discover as a customer benefit.
A screenshot of Alden's FICO score, which is based on TransUnion credit reporting data and provided by Discover as a customer benefit.

It was no easy feat. Out of the 200 million Americans who have FICO credit scores ― the most commonly used credit scoring model ― only about 1.4% have perfect 850s, Bloomberg reported.

Alden points to her long credit history, no missed payments and very low credit utilization for her 850 score. “I don’t open new accounts too frequently to churn for credit card rewards and have successfully paid off numerous student loans,” she added.

But what, exactly, is the winning formula for a perfect credit score? If there is one, no one except perhaps the credit scoring analysts truly know. There is a multitude of factors that affect scores, and they can change depending on your specific situation. Plus, FICO keeps its scoring model largely a secret.

Even so, we do know the basic factors that influence credit scores. So if you’re chasing the elusive 850, you have to crush it in every category.

5 Important Credit Score Factors

Payment history (35%)

The most important part of your credit score is your payment history, which accounts for 35%. A solid track record of always paying your bills on time will go a long way toward an eventual perfect score, while just one missed payment can screw things up considerably.

The effect of a late payment on your credit score depends on the severity, when it happened and how often you pay late, according to credit reporting agency Equifax. Generally, though, the later the payment, the worse it is for your score.

Your current credit situation also plays a role. For example, if a person with a 780 FICO score and no history of late payments became 30 days late on a payment, they could experience a drop of 90 to 110 points. However, if that person’s current score were 680 and they’d missed a couple of payments in the past, they could expect to lose just 60 to 80 points after another 30-day late payment.

Amounts owed (30%)

The next-most heavily weighted credit score factor is how much debt you owe in relation to the total amount of credit available to you. This is also known as your credit utilization. The more of your available credit you use, the more of a risk you are to lenders since it can seem like you’re relying too much on credit to get by.

Though there’s no perfect credit utilization ratio, most experts agree that keeping it under 30% is a good guideline. But the less you use, the better. Those who have a credit score of 800 use about 7% of their available credit, on average. Installment loans, such as car loans, student loans and mortgages, also tend to be weighted less heavily than revolving credit, such as credit cards.

Length of credit history (15%)

The length of time you’ve been using credit is also important to your score. Creditors like to see that you have a history of borrowing money responsibly, so longer credit histories are viewed more favorably.

But it’s not just how long you’ve been using credit in general that matters. According to FICO, your credit score takes into account the age of your oldest account, the age of your newest account and the average age of all your accounts, as well as how long specific accounts have existed and how long it’s been since you used them. So, for example, even if you got your first credit card 20 years ago, opening a new one could bring your score down a bit since it lowers the average age of your credit.

Credit mix (10%)

In addition to a long, positive credit history, your score is also boosted by using a diverse mix of account types. For instance, someone who has only ever used credit cards will be at a disadvantage compared with someone who also paid off a car loan and has a mortgage.

FICO notes that you don’t need to have one of every type of account, especially if that means borrowing money you don’t need. What’s more important is having a mix of revolving and installment credit. The right number of accounts to have is dependent on your personal situation.

New credit (10%)

People who open several accounts within a short period of time are a higher risk to lenders, especially if they have shorter credit histories. So, applying for new credit too often can be a red flag that you’re struggling financially and will be reflected in about 10% of your total credit score.

That goes for applications that are rejected, not just the accounts you’re approved for. A credit inquiry occurs every time a lender or other entity pulls a copy of your credit report for review. These inquiries stay on your credit for two years and can ding your score. However, FICO only considers inquiries from the last 12 months. Plus, checking your own credit doesn’t count against you.

How Long Does It Take To Get To An 850 Credit Score?

The No. 1 factor that separates people with an 850 score from those in the high 700s or low 800s is typically the length of their credit history, according to Logan Allec, a certified public accountant who runs the personal finance site Money Done Right.

“So, even if, for all practical purposes, you are doing everything perfectly credit-wise ... the fact that you simply haven’t had credit history long enough could prevent you from achieving the elusive 850,” Allec said.

There’s no hard evidence that points to exactly how long of a credit history is long enough to achieve an 850 credit score. One 2011 study by SubscriberWise, a company that provides risk management services to a major credit reporting agency, found that among the quarter of a million credit reports from its national database of U.S. member operators, the shortest length of credit history for those who achieved a score of 850 was 17 years. The average length was 30 years. So, if you’re hoping for a credit score of 850, patience is the name of the game.

Why You Don’t Need A Perfect Credit Score

Though it’s definitely possible to reach an 850 score, it’s nothing more than a vanity number, Alden said. “Anything over 800 is just a bonus and likely won’t result in better lending rates or other perks.” That’s because most lenders consider anything over about 780 to 800 to be “excellent,” so any score over 800 puts you comfortably in the top tier.

“That being said, even a high 800+ score can sometimes fail to qualify you for the best rates,” Alden said. For example, say you’ve never had an auto loan. Even with a score of 800 or more, you might only receive the second-best lending rate on an auto loan since you don’t have any track record there. It’s all up to the individual lender, and your credit score is just one part of your larger financial picture that gets evaluated when you apply to borrow money.

But if you’re motivated to go for a brag-worthy 850, there’s no harm in trying. “Just know that you might be waiting awhile,” Allec said.

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