When a credit score can make or break you, it’s easy to wonder, “What is the highest credit score possible?” The Fair Isaac Corporation (creator of FICO credit scores) uses two types of credit-scoring models: base scores and industry-specific scores. The base scores range from 300 to 850, and the industry-specific scores range from 250 to 900. While it is possible to get an 850 credit score or higher, only 20.7% of the U.S consumer population scores between 800-850.
As higher credit equates to lower risk, someone with a near perfect credit score can expect attractive interest rates and excellent odds of approval. However, there are other credit categories that also allow for new credit opportunities. A credit score between 300 and 579 is considered very poor, 580-669 is fair, 670-739 is good, and 740-799 is very good. Anything above an 800 credit score is well above average and deemed exceptional credit.
For the 79.3% of people not yielding an 800 credit score, the goal might simply be to improve the score you have. To increase your score and maintain good credit standing, here’s a comprehensive look at specific credit management methods to avoid, including the leading causes of low credit, and best methods to put into practice.
Poor Credit Practices
Late or Defaulted Payments
Seeing as your credit history contributes to 35% of your credit score, be sure to pay your credit card and loan balances on time each month. Defaulting on payments will no doubt elicit a dip in credit score.
Creditors will often hire a debt collection agency to acquire payment owed. These agencies will often take extreme measures to obtain payment.
If a creditor sees that you do not intend to make payments, your account will be charged off and your score will take a hit.
Defaulting on a Loan & Foreclosure
Avoid both, as they communicate in no uncertain terms that you are a risk to prospective lenders. A foreclosure also represents a history of bad credit and unpaid bills that will impact your credit score by showing up on a credit report.
Judgments, especially unpaid, demonstrate to creditors that you were forced to pay a debt by the court system.
Bankruptcy is detrimental to your credit score, more so than anything else, and should only be a last resort.
Best Credit Practices
Use More than One Credit Card
Avoiding credit card debt is a fundamental of fiscal responsibility. However, to effect a healthier credit score, using multiple credit cards might be necessary. It has to do with decreasing utilization. Utilization is the percentage of available credit being used and is calculated across all of your credit cards, as well as for each individual one. If your credit limit is $100 and you have a balance of $50, your utilization would be 50%. High utilization is an indicator of your inability to control spending, and can negatively affect your credit. Because credit card companies determine credit limits based on income, using too much of your available credit results in a risky debt-to-income ratio.
The recommended utilization ratio is 20-30% or below. When attempting to reduce your utilization, remember that you want a low statement balance, but not zero. Make more frequent credit card payments, increase your credit limit, or apply for a new card. It’s also highly recommended to pay off your statement balance in full every month to avoid paying interest fees.
Check Your Credit Report
Surprises are not so fun when it comes to credit reports. To avoid moments of shock, and to stay up to date on your credit status, check your credit report at least once a year. Be aware of any errors and take action accordingly. You can dispute inaccuracies or incorrect information, and make a complaint to the Consumer Financial Protection Bureau. Credit reporting agencies will typically respond much quicker once a regulator is involved.
Pay Active Accounts First
As radical and backward as it seems, it is usually more beneficial to keep your active accounts current rather than collections accounts. The damage was done when the item in collections was registered on your credit report, so paying it will not affect your score. Going delinquent on credit cards by more than a month, however, will surely knock your score down. This is not to say that collections payments can be avoided altogether, only that current accounts should be the priority. Meet the obligations of your active creditors before dealing with items in collections to avoid slipping further down the credit ranks.
Credit pitfalls can take years to correct, and without the right practices, the highest credit score possible for you might not be too impressive. Better credit management will improve your score, save you interest payments, and open doors for borrowing money down the road. Check out Lift Credit for fast and simple personal loans.