I’ve had a perfect 850 credit score for more than a year.
How has my life changed?
Not one little bit.
I’ve been getting about the same number of credit card offers as when I had scores in the 700s. And I haven’t received any preferential treatment, like when you board an airplane and your elite status gives you the right to slide past passengers with regular boarding passes.
The most I’ve gotten from having a perfect credit score is being able to kid my husband that my score is higher than his. His hovers around 830.
“After a certain point, it doesn’t matter anyway,” he quipped.
He’s right. The widely used FICO credit score ranges from a low of 300 to a high of 850. A high score — along with other financial factors — can place you in a tier that results in the best lending deals. But high scores beyond a certain threshold are pretty much equal.
So it’s noteworthy that the national average credit score has hit an all-time high of 706, according to FICO, the company that created the scoring model used by most lenders.
“That’s a big milestone,” said Ethan Dornhelm, vice president of scores and predictive analytics at FICO. “It’s worth celebrating when you can improve your score to the point that it starts with a seven.”
Since reaching a bottom of 686 in October 2009 during the Great Recession, the national average FICO score has been steadily increasing.
Dornhelm said the key drivers of the improvement in scores have been the U.S. economic recovery, consumer credit educational efforts and an initiative by the credit bureaus that has led to certain accounts in collections being removed from people’s credit files.
“It’s been a pretty stable and growing economy over the last 10 years, driving things like lower unemployment, which in turn drives consumers being in stronger financial health,” Dornhelm points out.
Increasingly, lenders have been providing free credit scores to consumers. I’ve found that when people know their score isn’t good, they want to work on improving it. The two biggest factors that will boost your score are paying your bills on time and reducing the amount you owe.
Some consumers may have seen a boost in their scores because negative information has been removed. In a report last year, the New York Federal Reserve said collections accounts — which are unpaid debts sent to collection agencies — became more prevalent between 2008 and 2012 as Americans went through financial hardships stemming from the Great Recession.
The data showed the percent of consumers with a collections account dropped from over 14 percent to 12 percent between 2013 and 2017, according to the Federal Reserve. In the fourth quarter of 2017, that share declined to just 9 percent.
The Federal Reserve noted that the decline in collections accounts was the result of an initiative launched by the three major credit bureaus — Equifax, Experian and TransUnion. Under the plan, which is part of a settlement with more than 30 state attorneys general, the credit bureaus agreed to remove certain debt information from consumer files — including civil judgments, tax liens, and traffic and parking tickets or fines. The initiative also called for the deletion of previously reported medical collections that had been paid or eventually covered by insurance.
Following implementation of the initiative, the number of individuals with a collections account on their credit report fell from 33 million to 25 million between June 2017 and June 2018, according to the Fed report. There was an average credit score increase of 11 points during the quarter the collections accounts were removed. Some individuals saw their credit scores increase by more than 30 points.
People with FICO credit scores in the 800s often wonder why they haven’t achieved perfection. But you don’t need an exceptional score to be considered a premier borrower.
By the way, I should note FICO also creates industry-specific scores that allow a deeper look at consumer information to determine how risky a borrower may be. These scores can range from a low of 250 to a high of 900, according to Dornhelm.
Here’s why you shouldn’t fret if you don’t have a perfect credit score.
Let’s say you want to purchase a car. Your lender reserves its most favorable auto interest rates for consumers with certain lending criteria that include a credit score of 720 or higher. Anything above this benchmark doesn’t give you any extra leverage.
“The ‘beautiful’ FICO score is really in the eye of the lender,” Dornhelm said. “Every lender has their own risk appetite. But I will say, once you’re looking at FICO scores over 700, consumers should be qualifying for most any credit they’re applying for, and at pretty favorable terms.”
So, if your credit score number starts with a seven, you’re in good company.
Readers may write to Michelle Singletary at The Washington Post, 1301 K St. NW, Washington, D.C. 20071 or email@example.com. To read previous Color of Money columns, go to wapo.st/michelle-singletary.