Your FICO credit score impacts many of the decisions in your life. This magic 3 digit number affects the vehicle you can drive, what kinds of jobs you can have, where you can live and kids can go to school, and what kind of house you can buy. FICO scores come in ranges; with 300 reserved for those who use bankruptcy as a savings method, and 850 when the banks ask you to balance their budgets. Very few people ever achieve the upper echelon of perfect credit. MyFICO.com says that only 1% of the population has a FICO score of 850, while 13% are in the 800+ group. If your FICO is over 700 you are defined as having good credit.
What do the credit files of a person with a perfect FICO score look like? The FICO algorithm is a carefully guarded secret, however with enough information we can piece together the requirements to surpass an 800+ FICO score. FICO credits scores use five primary criteria to generate the number, which is detailed below.
We compared this information and information that we dug up on the Internet on what it takes to achieve a perfect score. Keeping all of this data in mind, let’s examine each of these factors and how they can help you get an amazing credit score.
History of Payments – 35%
Paying your bills on time is of the utmost importance. Most creditors don’t record a late payment until it surpasses 30 days, however there are always exceptions and even if you are only a few days past due, you could have a report filed with the credit bureau.
Generally, there are four late payment categories: 30, 60, 90 and 120+ days past due. These can follow your credit score for many years. You should always make an effort to pay at least the minimum payments each month.
- Perfect credit scores show no late payments in the last seven years, on average.
- For scores in the 800+ range, there will normally be no late payments within the last four years
Amounts Owing – 30%
Having access to debt doesn’t mean that you should use up all of your debt as fast as possible. A large portion of the FICO score is determined by the amount of money owing to your debtors, and that amount is compared to the total amount of credit available to you. It’s called ‘utilization’, and it’s a simple ration of your current debt to your credit limit. An example is a credit card with a $7500 balance and a $10,000 limit would have a utilization ratio of 75% (7500/10,000). Maxing out your credit cards would therefore lower your credit score. The best advice is to keep your utilization score at below 30%. The FICO algorithm takes into account the number of open accounts with outstanding balances, loan amounts still outstanding, and amounts owing on specific account types like revolving credit and loans that have installments.
- Perfect credit scorers usually have a utilization of under 10% for revolving type accounts like credit cards.
- Higher credit scores are found with installment loans when the borrower has paid down the original balance by at least 35%
Credit History – 15%
Wine gets better with age, and so does your credit score. Young professional have difficulty achieving an exceptionally high credit score mainly because they only recently have begun establishing a credit history and getting loans.
- Perfect FICO scorers on average opened their first accounts almost 20 years ago.
- 12 years, with 10 years of positive credit history was the average for people with scores over 800.
Fresh Credit – 10%
How many times have you been denied credit that you’ve applied for in the last 2 years? If your answer is quite a bit, then your FICO score is headed into a nosedive. Constantly applying for credit raises a red flag for lenders that you need the money quickly and are an investment risk. There are times however, like when trying to find the best credit card offer, that you would apply for multiple lines of credit.
- Perfect FICO credit scores keep inquiries to 2 every 2 years.
- Many people with perfect credit have not applied for more credit lines within the last 12 months.
- FICO credit scores take into account the various types of accounts that are open, and accounts with high credit have a demonstrated history of responsible credit use.
Credit Types – 10%
In a diversified investment portfolio, you typically see a mix of stocks, bonds, and mutual funds. This same idea can be used when thinking about your credit. Having an assortment of debt types can be seen as a responsible use of debt. Mortgages, Retail and Consumer Accounts, Credit Cards and Installment Loans are some of the types of credit accounts that a FICO score evaluates.
- Perfect credit scorers normally have at least six accounts paid as per the terms of their contracts.
- There is no limit to the number of open accounts someone can have, but too many will impact your credit score in the future.
Your score may not be where you want it to be yet, but don’t give up hope. Setting small term goals and checking your credit score often is the key to successful building. There are numerous free trial accounts that will give you your credit score without a fee. Two great sites for this are:
- TrueCredit.com: This site provides a one week trial that reports on all three major credit agencies. After the trial, it is $14.95 per month.
- GoFreeCredit.com: After the trial it is $19.95 per month, but the one week free trial also includes reporting from the 3 big credit bureaus.
