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

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Updated on Friday, October 30, 2020

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
740-799Very good
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.