Updated: 7/5/2011 7:12 PM ET|
How to get a perfect credit score
There really is such a thing, and about a million Americans have one. If you want to join that elite club, get started now (the age of your credit counts).
There are certain things that we discover are just illusions as we grow up: Santa Claus, the Easter Bunny and the Fountain of Youth are a few.
However, much like Bigfoot, one myth persists well into adulthood -- the perfect credit score. Some swear they've seen it, but others think it's impossible.
"Never in my life have I met anyone with an 850 credit score," Bruce McClary of Clearpoint Credit Counseling Solutions, who has worked in the credit industry for years, tells MainStreet.
According to FICO, the company that designed our current credit model, these overachievers are out there.
Craig Watts, a spokesman for FICO, tells MainStreet that while most people score in the middle to low 700s on their credit scale, about 1 million people do, in fact, net a full score of 850. That's less than 1% of the U.S. population.
"They tend to be more conservative and a little older," Watts explains. He adds that these individuals also tend be rather humble, which may explain the near-mythic status they have inadvertently achieved.
"We don't get too many of them in our forums," he admits. "They aren't the type of people who stand up on a bus and tell everyone they scored an 850."
People who don't share their scores aren't likely to share their secrets for attaining them, either. Which is unfortunate, considering that the credit elite obtain the lowest annual percentage rates, get the best credit card rewards programs and qualify more readily for large loans.
"It's a noble goal to try to achieve," McClary says. However, he explains that you don't need to reach perfection to be considered among the credit elite.
"In reality, you don't have to have an 850," says John Ulzheimer, a former FICO employee now with Credit.com. Those with a FICO score above 760, he says, are typically privy to the same benefits as those with perfect credit.
Of course, a score that high isn't easy to achieve either. To reach the top tier you have to master not just the basics -- maintaining positive payment history and a low debt-to-credit ratio -- but you must pay attention to the details as well. In an effort to help those with lofty credit aspirations, MainStreet has put together a profile of what these credit superstars look like.
They have a long and impressive payment history and a clean record
The bulk of your credit score is determined by your payment history and the amount of debt you may or may not have currently on file. Unsurprisingly, those with perfect credit scores use credit regularly while paying it off on time, every time. They also have squeaky clean records. Ulzheimer explains that the credit elite have no debt to speak of. "No liens, no bank repossessions, no settlements," he says. "Nothing."
They maintain a diverse set of accounts
Credit lines fall into two major categories, McClary says. Installment accounts are closed-ended and require consumers to pay a fixed amount each month until the entire balance is paid off. These typically include mortgages or car loans. Revolving accounts, on the other hand, limit the line of credit but have balances that fluctuate. These essentially are the accounts tied to the credit cards in your wallet.
Top credit scorers have a careful balance of both accounts on record. "They'll have a mortgage, a car loan and a few credit cards on file," McClary explains.
They have a "well-aged" credit report
When I pulled my own credit report recently, I was surprised to learn that my score, though quite good, paled in comparison to that of my financial mentors, Mom and Dad. The truth is, unless they should decide to stop managing their credit so meticulously, I stand little to no chance of ever surpassing them.
"One advantage to being older is that you tend to have a longer credit history," McClary says. Keep in mind, though, that it's not your age, but the age of your oldest credit account on file that influences your overall score. As such, you may want to keep open that store charge card you opened on your 21st birthday.
They have a very limited number of credit inquiries on record
On the other hand, anyone without a store charge card shouldn't open one frivolously. While having a large number of credit card inquiries on file won't dramatically decrease your score, it can keep you from joining the credit elite, especially if several inquiries are recorded over a short time span. This is why Ulzheimer advises that you refrain from opening up a litany of store accounts during the holiday season, no matter what type of discount the retailer is offering as an incentive.
"Applying for credit organically as you need it is fine," Ulzheimer says, before cautioning "never use your credit score to get a 10% discount at the mall."
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Don't make the mistake of thinking your life depends on your credit score. I carried a score of 810 for many years and have 30 years of squeeking clean credit. Houses, cars, and signature loans all paid on time. Then in 2008 I became disabled and my husband lost his job. We filed for bankruptcy and now our credit scores are in the low 600's (or lower) and those thirty years of great credit worthingness mean nothing. And it could happen to you overnight like it did to us.
You don't need to buy a house or a fancy car. You don't need 60 pairs of shoes and 50 suits, therefore, you don't need a walkin closet. White appliances cook as well as stainless and they're easier to clean. Our leased townhouse is new and when something breaks we don't pay for it. Our relatives stay in a motel when they visit. If they don't like that they don't need to visit. We have a pool and hot tub but don't need to maintain it. We own our vehicles and keep them in our two car garage. I sit and drink coffee while watching our lawn being mowed and landscaping cleaned every week. I don't need a house to raise my 10 year old granddaughter, she is happy with her own room (with onsuite). WE PAY CASH for everything and live on 1/3 our former income.
The "American Dream" does not exist and we're a lot happier without it.
Something is wrong here. I have seen many scores over 850 working in the credit industry. The highest I have seen is 900. I know there have been recent tweaks to the Fair Isaac and this could be the reason for the disparity.
The only other thing I find a little off-putting is the secrecy the reporting agencies operate in. Nobody truly knows how a score is calculated except the people that actually do the figuring.
Also, why should I have to pay to view MY OWN information if I want to look at it more than once per year.
I was stunned when I went for my mortgage to find out that my credit score was 840. So was the mortgage agent. Apparently she'd never met anyone with a score that high. The article said that people who have high scores don't share their secrets. But, the secret is right there in the article. Pay it all, and pay it early. That's the secret. 30 year mortgage paid in 3 years. 5 year car loan paid in 2 years. Credit cards...no balance ever, because I transfer the total to the card as soon as I get home.
What it essentially means is that I don't buy what I can't afford.
For almost all my working adult life I have lived without a credit score. Now in the last 20 or so years a credit score dictates what kind of a person I am. I call BS on it. It is just a way for insurance companies and banks to legally rip off the middle class by charging us higher fees and insurance rates. Who do these banks and insurance companies think they are controlling every facet of our lives while they themselves made bad deals and ruined our financial system with their credit default swaps and wrote a ton of bad mortgages. I never got a bail out because I was an idiot.
I am calling on our pukes of politicians to write a law making it illegal for the banks and insurance companies to use credit scores.
By the way my credit score is well over 800 so I am not a victim of this BS but, plenty of people are.
I think there should be a NEW company that simply adjusts based on weather you paid your bills or not, and not weather you have 20 credit cards or loans. And your ability to pay.
Skilled financial analysts should be making these decisions , not $8.00 an hour high school drop outs like Transunion, Equifax and Experian uses. The whole thing is a sham and should be investigated by the Attorney Generals that over see these types of cases.
Credit reporting was a fine idea until the day, the big three created a spawing ground for ways to profit form their purpose. They were meant to be watchdogs for business, banks, and others that provided credit information on their customers. Now they have created a group of greedy companies that somehow think you should pay them unjustified fees. In addition, they are now tools to seek information on individuals for employment plus a number of others.
I don't use anything but cash these days, and I don't care if I even have a credit score.
Banks and insurance companies hammer you with higher interest and higher payments for behavior they consider undesirable.
They don't care if it's from being sick, run over, or bankruptcy. If you are sixty days late, the little black marks start appearing and your score goes down.
Funny thing is if you travel the world , no other countries know of, or care what your :Credit Score" is here in the USA.
I applied for refinancing my existing mortage. FICO score was in the mid 700"s, however when i checked my credit score through Transunion, Equifax and Experian my score wa in the mid 800's. I questioned my loan officer about the differece and found that these credit agencies don't score the same as FICO. This is very misleading even though they have a disclaimer about the scoring not being a FICO score. WoW. I will never pay for scores again since they are not the same.
When I was forty I bought my wife a new car. At that time the credit score was 1000 points. When the dealer checked my history they gave me anything I wanted. My score was a 934. Several years later I was injured, lost my job and could not pay my debts on time. My score fell to a 514. Before my credit score dropped I figured out how to pay off most of my out standing debts in a round about way. I had a vehicle I had paid cash for, took out a loan against it and paid everyone off. That did not stop my score from falling but it allowed me to build a foundation to start from. The credit reporting companies are not suppose to report the same debt over and over. But when you are trying to pay everyone off your debt can get sold to a collection agency. That becomes debt number two. You can't afford to pay them right now so they sell your debt to another collection agency and your debt become debt number three. This happens all the time. The only way you can prevent this from happening is to take your free annual credit report from all three agencies and dispute every thing that is wrong in writing addressed to the proper address for each agency. This is not the time to get angry or sloppy. Be very careful what you say and how you say it. They already know what authority you have on your side so do not BS. Stick to the facts. This is going to be a long drawn out effort on your part. But you can do it. In case I have not mentioned it my score is now over 820. One last thing I should mention. A few months into repairing my credit score I had written three letters to all three credit companies. One of them tried to scare me off insisting that I had hired a credit repair company. I hit them with another letter with more proof of their mistakes. Do not BS them and do not let them BS you. I forgot to tell you that I mailed everything certified.
One thing that I don't think was mentioned was your balances on your credit cards.
If you have a 10k limit on a card and your balance is 8k that hurts your credit because
your equity in the card is minimal. If you have a 2k balance and pay on time that will
have a substantial positive on the card............
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