Some analysts claim that an 850 credit score provides fewer lending options than an 820, since lenders know they will make almost nothing off of someone with perfect credit. Still, most of us would choose the 850 and just take our chances, since great credit can open so many doors for us. So the obvious question is, how can I get a perfect 850 credit score?
For starters, you need to understand what the general components of credit scoring are. By examining each of these components, you may discover that the individual risk score factors that make up each component can be targeted individually to make sure that you are receiving maximum scoring points for each factor. Here are some of the most important factors to focus on:
Since payment history is responsible for 35% of credit scoring inputs, this component carries the most weight. These risk factors are credit killers:
- 2 – level of delinquency on accounts
- 18 – number of accounts with delinquency
- 19 – too few accounts currently paid as agreed, (factor 27 for TransUnion)
- 20 – length of time since derogatory public record or collection is too short
- 22 – serious delinquency, derogatory public record or collection filed
- 38 – serious delinquency and public record or collection filed
- 39 – serious delinquency
- 40 – derogatory public record or collection filed
If you have any of the above risk factors, you can forget about an 850 until that negative payment history drops off of your credit report. A perfect payment history means that you have zero missed payments over a very lengthy reporting period on multiple accounts. An 850 may be impossible if you do not have a perfect payment history on multiple major credit accounts over a period of more than 20 years.
You may notice that factors 22, 38, 39 and 40 are very similar. It is possible that one defaulted debt can trigger multiple risk factors, thereby compounding the impact on your credit score.
Your debt balances hold a 30% share of credit scoring importance. Unlike payment history, this component is temporary in nature. You can make massive gains in your credit score if maxed out accounts are suddenly paid in full.
These are individual risk factors that can cause you to lose points due to balances:
- 1 – amount owed on accounts is too high
- 5 – too many accounts with balances
- 10 – proportion of balances to credit limits is too high on revolving accounts
- 11 – amount owed on revolving accounts is too high
- 21 – amount past due on accounts
- 23 – number of bank or national revolving accounts with balances
- 33 – proportion of loan balances to loan amounts is too high
- 34 – amount owed on delinquent accounts, (factor 31 for TransUnion)
Most of these risk factors have to do with your credit utilization ratio, which measures the percentage of debt balances to your total credit limits. While this ratio is more important on revolving accounts, it has a similar impact from installment accounts.
The length of account history comprises 15% of credit scoring. Long-term credit relationships are highly rewarded. The most important risk factors include 12 (length of revolving credit history is too short), and 14 (length of credit history is too short). Your oldest open accounts are your greatest credit builders.
Several risk factors deal with new credit, which is 10% of credit scoring. Most have to do with multiple recent inquiries (8 – too many recent inquiries in the last 12 months) or recently opened accounts (9 – too many accounts recently opened). Risk factor 7 (account payment history too new to rate) can cause you to be unscored altogether.
Credit scoring formulas also dedicate 10% of the formula to a mix of accounts. While this may sound unimportant, it is important for prospective lenders to see that you can handle multiple types of accounts. If you have too few or too many bank revolving accounts, your scores could be affected negatively. If you have no recent non-mortgage balance information, your ability to handle a new revolving credit account is less than certain. If you rely too heavily on consumer finance companies for loans, then you could be losing points to risk factor 6.
You may note that while not all of the credit bureau risk factors have been featured above, each does influence your credit scores to some degree. The weight that each scoring factor has in credit scoring formulas is a secret, and neither Fair Isaac Corporation or the three main consumer credit bureaus are willing to share this information. This unknown makes it that much harder to obtain the magic 850 credit score.
Understand that while 850 might be the perfect score, anything over 780 is generally considered to be perfect credit. Once you have achieved at least a 780 score with all three credit bureaus, you can consider yourself a holder of the FICO Holy Grail.
Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.
Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.
In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.
Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!
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