For many consumers, a perfect credit score is like a four-leaf clover. You know it exists. It’s just rare.
The FICO credit score model ranges from a low of 300 to a high of 850. Just 1.5 percent of scorable U.S. consumers earn an 850 as of this past April, according to Ethan Dornhelm, vice president of scores and predictive analytics at FICO.
Each credit bureau report generates a score depending on the model used. The most widely used is FICO. So you can have more than one credit score depending on the credit file searched and the version of the scoring model used. I keep a constant watch on my scores, taking advantage of the many ways to view them for free. By the way, the scores given to consumers can differ from the ones used by lenders.
This month, I logged on to Discover Credit Scorecard (creditscorecard.com) to view my free “FICO 8″ score, which is based on my Experian file. Generally, my numbers fall in the low 800s.
And it was: a perfect 850 score.
Thinking it might be an aberration, I pulled my score at freecreditscore.com, which uses the same model and credit bureau. Another 850.
I logged in to one of my bank accounts. This lender uses the “FICO 9″ model. Still 850. At my credit union, ditto, but it pulls information from Equifax.
Four checks. My four-leaf clover.
For a second, I thought I heard the “Aaaahhhh” of an opera singer.
A reader named April from Millville, N.J., wrote to me recently, fretting about her inability to reach this pinnacle.
“I have a credit score of 800,” she wrote. “I pay my bills in full and on time every month. I have no debt except a mortgage that we pay extra on every month. What in the world allows someone to have an 850?”
Let’s take a deep dive into my Discover report, which nicely lays out the five categories affecting your FICO score, with specific explanations that can push you to perfection. Here’s what was listed, starting from least important to most vital.
Credit mix: The scoring model looked at 16 accounts, which included some installment loans (mortgages, auto loans, etc.) and revolving accounts (credit cards). A mix of credit shows you can handle various types of debt, and this counts for 10 percent of your score.
Length of credit: My oldest account has been open for nearly 25 years. A long credit history accounts for 15 percent of your score.
Recent inquiries: When you want to borrow, a lender will pull your credit report, and that’s called a “hard inquiry.” In the past 12 months, I haven’t applied for any new credit. Not actively seeking to use other people’s money demonstrates a lower credit risk. New credit determines 10 percent of your score.
Revolving utilization: The amount of debt you owe determines 30 percent of your score.
I pay my credit cards off in full every month. But, even so, I also make sure that, during the billing cycle, I don’t spend anywhere near my available credit limit.
You’ve probably been told, including by me, that you should keep your utilization of your credit limit to no more than 30 percent. However, that’s just a general target. FICO says there’s no specific threshold when utilization begins to negatively affect your score. But analysis has shown that consumers with FICO scores over 800 use an average of just 7 percent of their available credit.
In the period in which my score was assessed, my revolving utilization was just 1 percent.
Missed payments: This is the big dog. Your payment history accounts for 35 percent of your score. My report showed zero late payments on any accounts for the past year and none over the past seven.
“On average, consumers with a FICO score of 850 have over 25 years of spotless credit history,” Dornhelm said.
So to sum it up, people with an 850 perform spectacularly across all five scoring categories, Dornhelm said.
“They typically don’t have a single delinquency on file, use a very low percentage of their available revolving credit, have a well-established credit history and seldom open new accounts, applying for credit only when necessary,” he said.
I’m not all high and mighty or obsessed with getting a perfect score or keeping it. Once you get into the mid-to-high 700s, it’s all the same from there. You don’t need perfection to qualify for the best credit deals.
And while reaching this milestone is pretty cool, what does it really mean?
You can have a great credit score and still be struggling. High-score achievers are not necessarily debt-free: They often have multiple credit cards with balances, according to FICO.
An excellent credit score alone doesn’t measure your total financial soundness. It’s just a measure of your ability to manage debt.