Consumers across the nation have the terms “FICO” and “credit score” embedded into their brains. These terms refer to a scoring system that judges a person’s reliability with creditors. Creditors use this main scoring system as their gospel for making crucial credit decisions. While they may use other factors in their decision-making process, creditors weigh an applicant’s score the highest in their procedures. Consumers are under the impression that they must all set their heights to achieving a perfect credit score. Is a perfect credit score worth it?
What Is a Perfect Credit Score?
Before a person can determine whether a perfect credit score is worth the trouble to obtain, the individual must first gain an understanding of what a credit score is. A credit score is a mathematical calculation that the credit bureaus derive from a number of factors. The numerical figure represents such items as the consumer’s payment history, amounts owed, types of credit used, new credit accounts, and the length of his or her credit history. FICO is the universal scoring system that most creditors reference for their decisions. The FICO score ranges from 350 points to 850 points. A credit score of 350 points is the poorest rating a consumer can have. A score of 850 points is the best score a person could have. Creditors would view an 850-point FICO score as perfect credit.
How a Credit Score is Calculated
Different aspects of a person’s profile are factored into the overall credit score. Payment history is the heaviest factor, as it counts for 35 percent of the overall score. The next highest factor is the amounts owed on all credit accounts. Amounts owed is equal to 30 percent of the score equation. The length of a person’ credit history is worth 15 percent of the score. Finally, new credit lines and types of credit used each make up 10 percent of an overall credit score.
How Creditors Use Credit Scores
Creditors use scores for more than just making decisions. The credit score that a person has can help a creditor to determine that person’s interest rate and other fees. For example, a person with perfect credit would receive the lowest interest rate on a credit card. He or she may have the privilege of obtaining a 7 percent interest rate after all the promotional offers terminate. The person with the poorest credit score might receive an interest rate that is as high as 79 percent. Consumers with other credit scores will fall in between those two numbers.
Creditors use consumer credit reports and scores to determine the amount of money they will issue a new cardholder. Perfect credit might give someone access to a several thousand dollar credit line on an initial credit card application. The same bank may issue a person with the poorest credit a card that has a $150 to $300 limit. Additionally, the bank may ask that person for a security deposit to protect its funds.
Is a Perfect Credit Score Worth It?
Having a perfect credit score can open up a whole new world of possibilities for a debtor. A person with perfect credit can walk into any store and purchase goods with 0 percent interest and no down payment. That person will have access to a wealth of low-interest mortgages, car loans, student loans, credit cards, personal loans and more. Therefore, obtaining a perfect credit score would be worth it in the eyes of many consumers. Getting a perfect credit score is not easy, however, especially if a consumer has extremely poor credit.
How to Get a Perfect Credit Score
Obtaining a perfect credit score is much easier for a person who is just starting out in the credit world than it is for someone who has a tarnished record. However, it is possible for a consumer to work his or her way up to a perfect FICO score. The following are some tips that can help a person obtain a perfect credit score:
1.) Limit Credit Inquiries to One Per Month: Credit inquiries may not be included in the credit score pie chart, but they do have an effect on a consumer’s score. Every time a person completes an application for credit, he or she can potentially lose one point from the overall score. Therefore, a consumer should limit inquires to one per month, and he or she should only conduct them for crucial reasons.
2.) Pay Down All Balances: Consumers who have outstanding account balances should pay them down as quickly as possible. Creditors report timely payments to the credit bureaus on a monthly basis. One timely payment can increase a credit score approximately three points per month.
3.) Make Payment Arrangements With Creditors: A consumer who is having trouble with certain accounts should contact his or her creditors before the missed payment affects the credit score. A friendly phone call and the willingness to make an arrangement can quickly resolve issues for a debtor. Some creditors are extremely flexible, and they are willing to allow a person to pay in small installments.
4.) Obtain a Copy of the Credit Report: Some consumers are surprised by the amount of inaccurate information that they find on their credit reports. For that reason, a consumer should obtain a copy of his or report at least once per year. All three major credit bureaus must supply a debtor a copy of such a report at least once annually. Once the consumer receives his or her credit report, the next step is disputing any information that seems inaccurate. The credit bureau must investigate all claims of fraudulent or inaccurate accounts. If the bureau cannot validate the account with the merchant, then it will have to remove it from the debtor’s account. The removal of a credit account will result in an immediate spike in credit score.
Obtaining a perfect credit score is well worth the effort. Such is possible with enough willpower, dedication and resources.
