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The Perfect Credit Score Isn’t Really 850

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Do you really need an 850 credit score to get the best rates?

Most people assume that in order to get the best treatment from lenders, you need to have perfect credit. Across both of the most common credit scoring brands, FICO and VantageScore, that highest score is 850 out of the now-standard range of 300 to 850.

But the truth is that while it’s nice to boast that you’ve maxed out your credit score, it’s almost impossible to achieve the magical 850. It’s also entirely unnecessary. There is no lender or credit product that requires you to have a credit score of 850 in order to be approved.  There is no lender or credit product that requires you to have a credit score of 850 in order to earn the best terms. In fact, your credit scores can be 90 to 130 points off the maximum and still result in your getting approved for the best deals from mainstream lenders.

To put it bluntly, 850 doesn’t buy you anything but bragging rights.

Case in point, according to Informa Research, which tracks interest rates by credit scores on a daily basis, the lowest rates offered on various mortgage related loans are being offered to people with scores at or higher than 760. And, the lowest rates offered on various auto loans are being offered to people with scores at or higher than 720.

The quest for a perfect 850 is often given different fictitious monikers like “Triple-A Credit” or “A+ Credit”, when in reality there is no such designation in the world of consumer credit scoring.  Your credit “rating” is the number, whether it’s an 850 or a 525.

Earning the ever-elusive 850 credit score requires that you have a statistically perfect credit report that indicates you are completely void of any sort of credit risk. But again, this is unnecessary and you will do just fine with 760 or better, which is a much easier target to hit.

Note: Looking for some personalized help with improving your credit score? Click the button below to get a free credit consultation which includes a credit analyst pulling and reviewing your credit report to answer any questions you may have!

How to get to 760

A score of 760 doesn’t require perfection. You can even have derogatory entries (like a missed payment) and still get there. It just requires that these negative marks are older and limited. You can even have a balance on your credit card and still score at or above 760. Your best bet is to use 10% or less of your card’s credit limits.  That means no more than a $1,000 balance for every $10,000 in credit limits across all of your cards.

The other targets are harder to hit because they’re not entirely in your control.  For example, the older your credit history is the better you’re going to score. Since you can’t exactly control time, this will be one of those areas where you’ll do better organically as time passes.

Account diversity is also a tough one to control. People will score better if they’ve got a record of managing different types of accounts, such as credit cards, student loans, auto loans, and mortgages. Nobody will (or should) go out and buy a car or a house just to benefit their credit scores. This is one of the metrics where you will improve as time passes and you build a history of auto loans and mortgages.

If all of this seems too complicated then let’s make it really simple. If you pay all of your bills on time all the time, apply for credit only when you actually need it and use credit cards sparingly then you’re going to earn and maintain great credit scores. It would be impossible for you not to do so.

Still obsessed with hitting 850?

If you are still obsessed with credit score perfection then there are some milestones that are going to need to be met and maintained.

A perfect payment history. Your credit report is going to have to be void of any negative information, and there are no exceptions. If you’ve got derogatory entries like late payments, liens, judgments, collections, defaults and the like then an 850 is not in the cards for you.

A low utilization rate. Utilization plays a big role in your score and it can be a little confusing. Essentially, credit scoring models look at your total statement balances across all your cards and compare it to your total available credit limit. They don’t even give you bonus points if you pay that balance off in full each month. They simply look at how much your balance comes out to with each billing cycle. The lower your total statement balances are, the better off you are score-wise. To get the perfect 850, don’t even think about carrying a balance on your cards. You need to be at or close to zero percent.

You’ve shown a long history of good behavior. If you apply for credit too often, have limited credit score information or have a young credit report then you’re not going to max out your score. You can’t open a bunch of accounts in a short period of time without hurting your scores. It reduces the average age of your credit and it also means a hard credit inquiry on your account, which can also ding your score. Again, this is no big deal if you’re shooting for the ideal credit score of 760 (or in the neighborhood of that) but it can certainly hurt you on your path to 850.

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A Personal Loan can offer funds relatively quickly once you qualify you could have your funds within a few days to a week. A loan can be fixed for a term and rate or variable with fluctuating amount due and rate assessed, be sure to speak with your loan officer about the actual term and rate you may qualify for based on your credit history and ability to repay the loan. A personal loan can assist in paying off high-interest rate balances with one fixed term payment, so it is important that you try to obtain a fixed term and rate if your goal is to reduce your debt. Some lenders may require that you have an account with them already and for a prescribed period of time in order to qualify for better rates on their personal loan products. Lenders may charge an origination fee generally around 1% of the amount sought. Be sure to ask about all fees, costs and terms associated with each loan product. Loan amounts of $1,000 up to $50,000 are available through participating lenders; however, your state, credit history, credit score, personal financial situation, and lender underwriting criteria can impact the amount, fees, terms and rates offered. Ask your loan officer for details.

As of 28-Feb-2019, LendingTree Personal Loan consumers were seeing match rates as low as 3.99% (3.99% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected).

Have more questions about your credit score? Send us an e-mail at [email protected] 

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

John Ulzheimer
John Ulzheimer |

John Ulzheimer is a writer at MagnifyMoney. You can email John here

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Credit Cards

What Everyone Should Know About the New VantageScore 4.0 Credit Score

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

View Your Free FICO Score for all 3 Credit Bureaus

In the world of consumer credit reporting and credit scoring moves at glacial speed. Every few years credit scoring systems are rebuilt or, more formally, redeveloped.  But, it’s rare that the newer versions of credit scoring systems are meaningfully different than their predecessors.

However, today VantageScore Solutions announced the release of the 4th generation of their VantageScore credit score which will become available from the three credit reporting agencies in the Fall of 2017, and it’s a game changer.

What is the VantageScore Credit Score

VantageScore Solutions was created by the three credit reporting agencies in 2006. The VantageScore credit score is a tri-bureau credit scoring model, meaning it is available for purchase and use from all three of the credit reporting agencies. The score is scaled 300 to 850, and the higher the score the better you look to lenders. According to VantageScore some 8 billion of their scores were used during the 12-month period between July 2015 and June 2016.

How is VantageScore 4.0 Different Than Prior Versions

VantageScore 4.0 is the only credit scoring system that considers your “trended” credit data.

What trended data says about the consumer is whether they’re paying their credit card balances in full each month, or if they’re just paying a small amount and revolving some or most of the balances to the next month. In the older form of credit reporting, prior to trended data, there was no way to distinguish between someone who paid in full each month from someone who paid a small amount and rolled the remaining unpaid balance to the next month.

Several years ago the credit reporting agencies began maintaining and reporting the historical balances and payments made on your credit card accounts. So rather than just reporting what your balance was last month, all three credit bureaus now report the historical balances and the amount you paid going back 24 months. This information is being called “Trended Data.”  You can see your trended data by looking at your credit reports via www.annualcreditreport.com.

Why does trending data matter?

In short, people who do not pay their cards in full each month are riskier than people who do pay them off in full each month.

That’s not anecdotal. TransUnion performed an analysis comparing the risk between transactors and revolvers and the results were staggering. People who do NOT pay their cards off in full each month are 3 to 5 times riskier than people who do pay in full each month. But until VantageScore 4.0, there was no difference in credit scores for someone pays in full each month versus not doing so. That’s why this is a big deal for lenders…it’s a materially better scoring model.

When Will Lenders Start Using the New Score?

This is the million dollar question…when? Converting to a new credit score is expensive and time consuming, and not mandatory.  Because of that, the industry tends to take a very long time fully adopting new scoring systems. Even FICO 9, the most current version of FICO’s credit score, doesn’t have a critical mass of users and it has been commercially available since late 2014. But, the features of VantageScore 4.0 are very compelling so it’s reasonable to expect lenders to be very interested as soon as the model goes live at the credit bureaus.

Having said that, VantageScore has partnerships with a variety of websites, like Credit Karma and Credit Sesame, that give their scores away to the sites’ registered users. Converting to newer score version is much easier for these websites because they don’t have the same barriers that lenders have. VantageScore 4.0 will likely be live and available from one or more of these websites not long after it goes live in the Fall of 2017.

What does this mean for you?

  1. It will become more important to pay your bill in full each month.

For you, this new model underscores the importance of paying your card in full each month. The average interest rate on a credit card is about 16% so it’s expensive to revolve balances. Notwithstanding the fact that you’re paying interest on the unpaid balance, now by not paying your balance in full your VantageScore 4.0 score is likely to be lower because you’re a riskier consumer. Conversely, those of you who do make it a practice to pay your cards in full each month, your VantageScore 4.0 score is likely to be higher because you’re a less risky consumer…and you’re not paying interest.

  1. Liens and judgments won’t hurt your score quite as much.

On or about July 1, 2017 the credit reporting agencies will remove most of the judgments and about ½ of the tax liens from credit reports. VantageScore 4.0 has been engineered to be less reliant on liens and judgments because, not surprisingly, there will be considerably fewer incidents where those public records find their way to credit reports. This isn’t really a big deal for consumers but it is a very big deal for lenders that will rely on the new score.

  1. Medical collections less than six months old won’t hurt your score at all.

Further, VantageScore 4.0 will ignore medical collections that are less than six months old, as in they won’t hurt your score at all. And the credit bureaus, as part of the NCAP, will remove medical collections that are paid or are being paid by an insurance company. The hypothesis, which makes perfect sense, is to avoid any unfair score impact caused by the inefficient insurance claim process. And for those medical collections that are older than six months and are not paid by insurance, which will remain on credit reports, VantageScore 4.0 will discount them so they don’t have as much of a negative impact as non-medical collections.

The Bottom Line: The VantageScore 4.0 is better for consumers and better for lenders.

The changes that were made benefit consumers who pay their cards off each month, and/or have medical collections. The changes benefit lenders because the score is considerably more powerful because of the consideration of the trended data information. It’s rare that a new scoring system is a true win-win for consumers and lenders…and VantageScore 4.0 is just that.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

John Ulzheimer
John Ulzheimer |

John Ulzheimer is a writer at MagnifyMoney. You can email John here

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How the Wells Fargo Scandal Could Impact Your Credit Score

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Wells Fargo Bank

Since 2011, roughly 2.1 million accounts were opened by Wells Fargo Bank for existing bank customers who didn’t actually intend to apply for them on their own. While some legislators are calling for the company’s leadership to face further scrutiny in the wake of the scandal, the bank’s customers are left wondering how their finances will be impacted in the long term.

If you’re a Wells Fargo customer, you probably have just one question:

What should I do if I’m one of the bank’s customers who ended up with accounts for which I never applied and what’s best for my credit scores?

We asked our resident credit expert John Ulzheimer to weigh in:

The fake accounts opened by Wells Fargo employees fell into four separate buckets of account types, according to the Consumer Financial Protection Bureau. Three of those four account types could result in some sort of credit score reduction: Deposit accounts (checking, saving); Credit card accounts; debit card accounts.

Credit Card Accounts

According to the CFPB, Wells Fargo submitted roughly 565,443 credit card applications that “may not have been authorized.” The application likely resulted in a credit report being pulled and a credit inquiry occurring, which as I explained above can cause a score to go down, albeit a minor decrease and in some cases has long since been removed. The more meaningful issue regarding credit cards is what to do with the open credit card account that is almost guaranteed to be on your three credit reports.

The impact of the credit card account can fall into one of three categories as it pertains to your credit scores; positive, negative or neutral.

Positive impact: If the account has no balance and a large credit limit then it’s very likely helping your credit scores because of the positive influence it’s having on your credit card balance-to-limit ratios. If this is the case then leaving the account open, assuming you actually don’t mind having it, may be the best course of action especially if you’re about to go out and apply for some sort of credit and need the best credit scores possible.

Negative impact: If the credit card account is relatively new then it may be lowering your scores because it is lowering the average age of the accounts on your reports. Closing the account isn’t going to change that because closed accounts still have a “date opened” and a young closed account is considered the same way that a young but open account is considered. If this is causing too much of a score problem then asking that it be removed may be your best bet. The deletion will back out any impact on your scores.

Neutral impact: If the credit card is unremarkable then it is likely not having any measurable impact on your credit scores. So, no huge credit limit helping your balance-to-limit ratios and the age of the account isn’t helping or hurting your scores.

In that case you can either live with the account and leave it open or you can close it or perhaps even ask that it be removed.

Deposit Accounts and Debit Card Accounts

According to the CFPB Wells Fargo opened roughly 1.53 million deposit accounts and an undisclosed number of debit card accounts that may not have been authorized by the customer. Deposit accounts generally include checking, savings and money market accounts…any place where you can make a deposit. Deposit accounts and debit cards are never ever reported to the credit reporting agencies so if one was opened in your name it’s not on your credit reports.

However, if the bank pulled a credit report prior to opening the deposit account or issuing the debit card (not unheard of) then there could be a credit inquiry on your report that you didn’t instigate. If that happened then there’s a chance your credit score went down as a result. Having said that, the inquiry would fall into one of these 3 categories and would be considered accordingly…

  • If the inquiry is over 24 months old then it has already been deleted by the credit bureau/s and is no longer being considered by any credit scoring systems.
  • If it is between 12-23 months old then it is still on your credit report/s, but is not being considered by any credit scoring systems.
  • If it is under 12 months old then it is being seen and could result in a lower credit score on that one credit report. If possible, I’d ask that any unauthorized inquiries be removed because they have no redeeming value. Point being, inquiries never help your scores.

While it was not mentioned in the CFPB’s Consent Order, in many scenarios overdraft protection on checking accounts is reported to the credit reporting agencies as an unused installment loan, normally with a line of no more than a few hundred dollars.

If that did, in fact, occur with these Wells Fargo checking accounts then the installment loan could result in a lower score but only if that loan is significantly lowering the average age of the accounts on your credit reports. The age of your credit history factors into your credit score. If it’s too low, it could drag your score down.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

John Ulzheimer
John Ulzheimer |

John Ulzheimer is a writer at MagnifyMoney. You can email John here

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