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What Is a Perfect Credit Score, and Why Does It Matter?

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A perfect credit score is 850 — specifically, that’s the highest FICO score. FICO is the scoring model most commonly used to determine, in part, how trustworthy you are as a borrower and what kinds of terms lenders could extend to you.

FICO credit scores range from 300 to 850, and your score is based on information in your credit reports. Think of it as your financial report card: The higher your credit score, the more liable you are to find lenders willing to work with you and offer you lower fees. This is true across all kinds of loans, from mortgages to auto loans, credit cards and more.

FICO credit score range: Where do you fall?

The average FICO credit score is 703, according to Experian’s 2019 Consumer Credit Review. The average bottomed at 686 during the housing crisis in 2009, when there was a sharp increase in foreclosures, but since then, the average has steadily risen.

To see where you stand, consider FICO’s credit score range:

FICO score chart
Credit score rangeRating
800-850Exceptional
740-799Very good
670-739Good
580-669Fair
300-579Very poor

Factors that affect your credit score

Your credit score is determined by a number of factors, from your payment history to the types of credit accounts you have open. Here’s a closer look:

  • Payment history (35%): Your track record for making on-time and in-full payments on credit affects a large chunk of your credit score. Late payments, delinquent accounts and debt in collections can adversely affect your credit.
  • Amounts owed (30%): How much money you owe on credit accounts can negatively affect your credit if it appears that your finances are stretched thin. Maxed-out credit cards, for example, can hurt your credit score.
  • Length of credit history (15%): A long credit history can positively affect your credit. On the flip side, a short credit history could be harmful, as there’s less evidence that you can manage credit for long periods of time. Factors assessed for this part of the score include the average ages of all accounts and how long it’s been since you’ve used them.
  • Credit mix (10%): Showing an ability to manage different types of credit products can have a positive influence on your credit score.
  • New credit (10%): Opening several credit accounts at once can be a red flag.

Benefits of a strong credit score

Lower interest rates

If you’ve got strong credit, you may qualify for competitive offers from a wide variety of lenders, whether you need a personal loan, auto loan or a line of credit. In general, a lower interest rate translates to a lower cost of borrowing. Over time, low interest rates can save you hundreds, if not thousands, of dollars on a loan.

Higher loan amounts and credit limits

You may also be able to borrow larger amounts of money compared to borrowers with poor credit. For example, you may be able to get a credit card with a $30,000 credit limit versus a $10,000 limit. You may also qualify for credit cards with low-APR introductory offers and rewards.

Better housing opportunities

Mortgage lenders and landlords want to know that you’re going to be responsible and honor your financial obligations. When it comes to a mortgage, your credit — among other factors — will affect your eligibility as well as the terms you receive.

For renters, many landlords run credit checks to see if you’re current on your accounts and have a positive rental and payment history. A good credit score could land you the rental you want and help you avoid needing to go the extra mile to prove you’d be a reliable renter.

Lower insurance premiums

The higher your credit score, the better chance for lower premiums on insurance, for items like your car or home. That’s because higher credit scores may be associated with a lower rate of filed claims. Insurance providers, meanwhile, may see lower credit scores as representing a higher risk and potential for more filed claims.

Better cell phone deals

Whether you’re hoping to snag the latest cell phone, sign up for a new cell phone plan or score special financing on a gadget, your credit score can affect your eligibility. In general, premium offers may be reserved for those with stronger credit.

Don’t fret if you don’t have the highest credit score

Credit scores are not fixed — they’re constantly fluctuating with everyday actions. Making purchases with your credit card and paying down your credit card balance, for example, affect your credit. Your score is also affected by things you can’t control, such as the age of your accounts.

That said, if you reach that perfect 850 credit score, you may not remain there long. But lenders don’t particularly care whether your score is 850 or 790, noted credit expert John Ulzheimer, who describes a score of 760 or above as “the sweet spot for credit.”

Your credit isn’t the only factor that affects your eligibility for credit. Your income and whether you own your home can also influence your eligibility, for example.

How to get an 850 credit score — or get closer to one

Pay your bills on time

Consumers with pristine credit never miss a payment. They consistently pay their bills on time, while the average American, according to analysis by LendingTree, has about six late payments in their credit history. If you need help paying bills on time, consider setting up autopay or some other system that can work for you.

Reduce your credit card balance

Most experts recommend keeping your credit utilization rate below 30% — though those with at or near-perfect credit scores typically keep that utilization rate below 7%, according to Ulzheimer. So, consider chipping away at those credit card balances and minimizing how much you charge if you want to work toward higher credit.

Apply for credit strategically

You should only apply for credit when it makes financial sense to do so. Opening a bunch of new accounts, especially within a short period of time, may suggest that you’re financially squeezed and taking on more debt than you can handle — a credit score no-no.

Keep unused credit cards open

Keeping old credit cards open — as long as they’re not costing you money in annual fees — is a smart strategy, as closing an account may increase your credit utilization ratio. Owing the same amount but having fewer open accounts may lower your credit score.

However, credit card issuers may close old, unused accounts, so you should periodically make a small purchase on old accounts you want to keep open — just remember to pay them off to avoid interest.

Dispute any inaccuracies in your credit reports

Be sure to check your credit reports regularly at the three major credit bureaus: Experian, Equifax and TransUnion. Inaccuracies and mistakes can — and do — occur, perhaps more often than you realize. If you see errors, dispute the information as soon as possible as they could be dragging down your credit score.

Monitor your credit regularly

Consider credit monitoring to make sure your efforts to achieve credit score perfection are accurately reflected. Credit monitoring services can help you spot inaccuracies, and even possible identity theft. My LendingTree is one service that offers credit monitoring, and can also help you shop for loans.

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Average U.S. Credit Card Debt

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

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Credit card balances are at all-time highs, and absent any other relief, the recent rate cuts by the Federal Reserve will do little to slow down growth in total balances that borrowers carry month to month. And while it’s still too early to know for certain, the cash crunch many households are experiencing in 2020 due to the COVID-19 pandemic may mean even greater average monthly balance increases than in recent years.

We’ve updated our statistics on credit card debt in America to illustrate how much consumers are now taking on.

  • Americans paid banks $121 billion in credit card interest in 2019. That’s up 7% from $113 billion in interest paid in 2018, and up 56% since 2014.
  • In February 2020, the average APR on credit card accounts assessed interest was 16.61%. Although the Federal Reserve has cut the key Federal Funds rate by two percentage points since mid-2019, the more recent cuts aren’t yet reflected in lower interest assessed to balances carried from month to month.
  • Total revolving credit balances are $1.05 trillion, as of February 2020. The vast amount of this balance is from spending on credit cards from banks and retailers, while $83 billion comes from revolving balances, such as overdraft lines of credit.
  • Americans carry $687 billion in credit card debt that isn’t paid in full each month. This estimate includes people paying interest, as well as those carrying a balance on a card with a 0% intro rate.
  • 43.2% of credit card accounts aren’t paid in full each month. Those who don’t pay in full tend to have higher balances, which is why the percentage of balances not paid in full (71%) is higher than the percentage of accounts not paid in full (43.2%).
  • The average credit card balance in 2019 was $6,194 for individuals with a credit card. That’s an increase from $6,040 in 2018.

Credit card use

  • Number of Americans who actively use credit cards: 184 million as of 2019, according to TransUnion.
  • Number of Americans who carry credit card debt month to month: 77 million.
    • We estimate 42% of active card users carry debt month to month, based on the Fed’s Survey of Consumer Finances.

Credit card debt

  • Total credit card debt in the U.S. (not paid in full each month): $687 billion
  • Average APR: 16.61% (also excludes those with a 0% promotional rate for a balance transfer or purchases). This estimate comes from the Federal Reserve’s monthly reporting of APRs on accounts assessed interest by banks.

The above estimates only include the credit card balances of those who carry credit card debt from month to month — they exclude balances of those who pay in full each month.

Credit card balances

  • Total credit card balances: $1.05 trillion as of February 2020, an increase of 3.3% from February 2019. This includes credit and retail cards, and a small amount of overdraft line of credit balances.
  • Average number of credit cards per consumer: 3.1, according to Experian. This doesn’t include an average of 2.5 retail credit cards.
  • Average credit card balance: $6,194. The average consumer has $1,155 in balances on retail cards.

The above figures include the credit card statement balances of all credit card users, including those who pay their bill in full each month.

Who pays off their credit card bills?

In 2019, fewer accounts were paid in full than accounts with a balance carried from month to month. According to the American Bankers Association:

  • Revolvers (carry debt month to month): 43.2% of credit card accounts
  • Transactors (use card, but pay in full): 31.1% of credit card accounts
  • Dormant (have a card, but don’t use it actively): 25.6% of credit card accounts

Delinquency rates

Delinquency rates peaked in 2009 at nearly 7%, but in 2019 delinquency rates were 2.6%, historically well below the long-term average.

Credit card debt becomes delinquent when a bank reports a missed payment to the major credit reporting bureaus. Banks typically don’t report a missed payment until a person is at least 30 days late in paying. When a consumer doesn’t pay for at least 90 days, the credit card balance becomes seriously delinquent. Banks are very likely to take a total loss on seriously delinquent balances.

Debt burden by income

Those with the highest credit card debts aren’t necessarily the most financially insecure. According to the 2016 Survey of Consumer Finances (the most recent data available), the top 10% of income earners who carried credit card debt had nearly twice as much debt than the average borrower.

However, people with lower incomes have more burdensome credit card debt loads. Consumers in the lowest earning quintile had an average credit card debt of $2,100. However, their debt-to-income ratio was 13.9%. On the high end, earners in the top decile had an average of $12,500 in credit card debt, though their debt-to-income ratio was just 4.8%.

A look at American incomes and credit card debt

Income percentileMedian incomeAverage credit card debtCredit card debt-to-income ratio
0%-20%$15,100$2,10013.9%
20%-40%$31,400$3,80012.1%
40%-60%$52,700$4,4008.3%
60%-80%$86,100$6,8007.9%
80%-90%$136,000$8,7006.4%
90%-100%$260,200$12,5004.8%

Source: 2016 Survey of Consumer Finances data

Although high-income earners have more manageable credit card debt loads on average, they aren’t taking steps to pay off the debt faster than lower-income debt carriers. If an economic recession leads to job losses at all wage levels, we could see high levels of credit card debt in default.

Generational differences in credit card use

In Q2 2019, Generation X cardholders had the highest credit card balances. The average cardholder from this generation had a balance of $8,215, according to Experian. Baby boomers held an average balance of $6,949, comparatively.

At the other end of the spectrum, millennials — who are often characterized as frivolous spenders — held significantly lower credit card balances, at $4,889. They also carry fewer (3.2) of credit cards in their wallets. Generation X carry 4.3 credit cards and baby boomers have 4.8 credit cards, on average.

How does your state compare?

Using data from Experian, as well as data from the Federal Reserve Bank of New York Consumer Credit Panel and Equifax, you can compare average credit card balances by state.

Differences in credit card debt by generation

In 2019, Generation X had more credit card debt, on average, than baby boomers, as those in their mid-40s typically have the largest amount of expenses relative to both younger and older consumers.

Methodology

In February 2020, MagnifyMoney collected and analyzed credit card data from government and industry sources, including the American Bankers Association, Federal Reserve, the Federal Deposit Insurance Corp., Experian, TransUnion and Equifax, to determine average credit card balances, interest rates, usage and delinquency rates.

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Mortgage Broker vs. Loan Officer: What’s the Difference?

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Senior businessman showing a document to sign to a couple

When you’re shopping for a home loan, you may wonder about using a mortgage broker versus a loan officer. While both ask the same questions about your financial situation and help you fill out a loan application, their roles are different.

A loan officer offers mortgage options only from the financial institution they work for, while a mortgage broker acts as a matchmaker between you and a number of different mortgage lenders. Learn the key differences and responsibilities of each type of mortgage professional so you can decide which one you want to work with.

What do mortgage brokers do?

The term “broker” refers to someone who negotiates on someone else’s behalf. A mortgage broker works with many lenders to find you loan programs with the best rates, terms and lowest closing costs for your situation, but the broker doesn’t actually lend you money.

The term mortgage broker is often used interchangeably with “loan officer,” but there are very important differences.

“A mortgage broker is a business entity that originates mortgage loans,” said Rocke Andrews, president of the National Association of Mortgage Brokers (NAMB).

In other words, a mortgage broker is a type of mortgage business, while a loan officer is a salesperson paid to give you the information needed to choose a mortgage that fits your needs. However, a loan officer is also licensed as a mortgage loan originator (MLO), which means they may also work for a mortgage broker, Andrews said.

What do loan officers do?

A loan officer (LO) is usually an employee of an institutional bank, credit union or mortgage lender. They review financial documents and can recommend a loan for preapproval to an underwriter who works for a mortgage bank or lender.

A loan officer originates mortgage loans and there are two types: a licensed professional loan originator and a registered loan originator, Andrews said.

Licensed professional loan originators must take extra education, pass a national test and meet the licensing requirements of the states they do business in. Registered loan originators typically work for federally chartered institutions like banks and don’t have to meet the same education and testing requirements as licensed MLOs.

Loan officers offer only the mortgage products of one financial institution. The lenders they work for lend the money, and you’ll typically make payments to the same company after closing.

Pros and cons of working with a mortgage broker vs. a loan officer

In many ways, a mortgage broker and mortgage loan officer perform the same tasks. They each review your loan application and financial paperwork to make sure you meet the minimum mortgage requirements. Here are benefits and drawbacks worth considering when deciding between a mortgage broker and a loan officer.

Pros and cons of working with a mortgage broker

Pros

Cons

You’ll get rates and fees from multiple lenders.

You have to wait for the lender to make the final approval decision.

You won’t have to do all the mortgage shopping yourself.

You may not be approved for special exceptions for a bad credit history.

You’ll have more loan products to choose from.

You may have limited access to down payment assistance (DPA) programs.

You can switch lenders if your loan is denied.

Your broker doesn’t control the approval process and doesn’t lend you money directly.

Pros and cons of working with a loan officer

Pros

Cons

You may get a break on rates and closing costs, depending on your relationship with your bank.

Your interest rate options are limited to the LO’s financial institution.

Your approval will be handled “in house,” meaning the lender can approve your loan and provide money to you directly.

You’ll have limited choices for loan products offered only by the loan officer’s company.

You may get an exception for unique income and financial situations.

You’ll need to start over with a new lender if you’re denied.

Your bank may be approved for more DPA programs.

You’ll contact several lenders on your own if you want to compare multiple offers.

Is it riskier using a mortgage broker vs. a loan officer?

No. Both mortgage brokers and loan officers are considered mortgage loan originators (MLOs), and have to meet strict federal requirements to be paid for helping negotiate mortgage loans.

To become a licensed MLO, a mortgage broker or loan officer must:

  • Pass an FBI criminal history background check.
  • Provide a credit report.
  • Provide proof of their mortgage loan activity to a national database, such as the Nationwide Multistate Licensing System (NMLS).
  • Pass a national mortgage test.
  • Take 20 hours of education courses.

Mortgage broker fees vs. loan officer fees

Mortgage brokers and mortgage loan officers have to follow strict compensation rules set by the federal Truth in Lending Act. Mortgage brokers can’t make more than 2.75% of the loan amount and must pay all of their costs and loan originator compensation out of that percentage, Andrews said.

Banks can make additional income because it’s not counted as part of the charge, but loan originators can’t make more than 2.75% of the loan amount, Andrews added.

Both mortgage brokers and mortgage banks pay loan officers a fixed percentage of the loan amount, although there may be variations, Andrews said.

To protect consumers, all mortgage loan originator compensation has to meet the following federal guidelines:

  • The pay must be based on a fixed percentage of the loan amount.
  • The compensation cannot be based on charging a higher interest rate or adjusting the terms of the loan.
  • Originators can’t receive a fee for referring a client to a business partner, such as a title company or real estate agent.
  • No mortgage originator may be paid by both the borrower and the lender. It must be one or the other.

Where to find a mortgage broker or loan officer

Ask friends or family who recently bought or refinanced their homes for a referral. Your real estate agent is also a good resource for mortgage broker or loan officer referrals. Use a comparison rate site and review offers from three to five mortgage companies.

You can research the background of a mortgage loan originator through these resources:

  • Nationwide Multistate Licensing System (NMLS). The loan estimates you receive within three business days of your application will include the NMLS “unique identifier” of each loan originator. This number is assigned so consumers, employers and regulators can track a mortgage broker’s or loan officer’s professional status online. Visit the NMLS Access Center to look up any licensed or registered MLO across 59 state and territorial agencies in the United States.
  • Consumer Financial Protection Bureau (CFPB). The CFPB publishes consumer complaints and the company’s response for consumers to review on its consumer complaint database.

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