Ideally, you want the highest credit score possible. There are many things you can do to increase your credit rating, but there are also a lot of things you can do to lower it. So, what is the highest credit score possible?
The highest possible credit score is 850. While it would certainly be ideal to have that score, you shouldn't obsess over obtaining it. Anything close to that is considered excellent, and you shouldn't have trouble getting loans.
If you are determined to get a credit score of 850 or close to it, there are a number of things you should start doing. Here, we will discuss what you can do to improve your credit rating and get it as high as possible.
Why Is Your Credit Score Important?
First, we need to define what your credit score actually is. Credit scores are the number lenders use to gauge your creditworthiness. A high credit score can save you a lot of trouble, whether that's in the form of lower interest rates on loans or being eligible for more types of credit.
If you want to know how to get the highest possible credit score, we will cover the essentials below. Moreover, we will walk you through all the factors that affect your credit score and how to work with them properly. You'll also learn how to make smart financial decisions and build your credit over time.
This is incredibly important for anyone who is serious about managing their credit. Yes, it's possible to climb to a credit score of 850, but you shouldn´t stress if you don't hit that magic number. Again, anything in the 800s is considered excellent credit, and you should be doing quite well if you're anywhere near that range.
Credit: How It Works
A credit score is only one number, but it's a hugely important one. Your credit score is essentially your report card. It tells potential creditors how well you take care of your finances and whether you're likely to make future payments on time.
The higher your credit score, the more financial options will be available to you and the less interest you'll pay for those options. There are two major types of credit scores:
- Those calculated by the nationwide credit bureaus, like Equifax and TransUnion
- Those calculated by individual lenders or loan providers for specific purposes, like mortgages.
The biggest difference between these two types of scores is that nationwide credit bureaus calculate your payment history, as well as how much you owe, whereas individual lenders may only calculate how much you owe.
What Affects Your Credit Score?
Your credit score is based on your payment history, the number of open accounts you have, the mix of credit types (for example, credit cards, installment loans), your total available credit, and your age.
You can improve your credit by making payments on time, preventing inquiries into your account, and paying off high-interest debts.
While it might seem like a credit score is an arbitrary number that lenders use to make decisions about you, there are many factors that go into it. The following sections will give you more detail about what those factors are and how they affect your score.
Factors That Can Lower Your Credit Score
Having a good credit score can make all the difference in your financial future. For example, having a high credit score will save you money on interest rates on loans. This is because lenders are more confident that you will make payments on time if you have a strong credit history.
But if your score is low, it could mean higher interest rates for your loan or, worse, being denied financing altogether. There are many factors that can lower your credit score. Here are some of the most common:
- Late payments
- High debt
- Too many inquiries
- High credit utilization
It's important to do everything possible to eliminate debt, as it is one of the biggest contributing factors that lowers credit ratings. We live in an era where debt is out of control, but it's crucial that you do your part to stay away from debt as much as possible.
In doing so, you will enjoy less stress and better credit. Keep in mind that this is an ongoing endeavor. One slip-up can cost you a stellar credit score. So continue to work on your credit rating all throughout your adult life and avoid making costly mistakes.
And speaking of which, let's examine some of the most important components of credit that you need to keep an eye on.
Your Debt-to-Income Ratio
Your debt-to-income (DTI) ratio is one of the most important factors when it comes to determining your credit score. You calculate DTI by dividing any debt payments you might have each month by the gross income you bring in each month.
For example, let's say you bring in $6,000 a month and have $2,000 in monthly debt payments, your DTI ratio would be 33%. It's important to note that a high DTI can damage your credit score because lenders will feel that you're not able to handle the responsibilities of managing money well.
To maintain a good DTI ratio, keep your debt payments below 36% of your monthly income. But even then, you want to get it much lower than this if possible. Thirty-six percent should be seen as the absolute limit. Anything higher, and you're in the danger zone.
If you find yourself at risk for exceeding this limit, look into consolidating some debts or taking out a personal loan to pay off some bills. You can use an installment plan to pay off credit cards over time without hurting your credit score too much.
Of course, this isn't always possible depending on how much you owe and what you currently earn each month, but it's certainly worth considering. Money management is an art in and of itself. If you can master it, you will easily conquer debt.
Number of Accounts Sent to Collections
The number of accounts sent to collections is one of the biggest factors that affects your credit score. If you have too many accounts sent to collections, this will lower your score. Even if it's just one account, it could affect your credit score.
If you're considering opening up a new account, make sure you already have at least one other account open and in good standing. The lender will look at how many open accounts you have when determining your creditworthiness.
Length of Credit History
Length of credit history is one of the most important factors in your credit score. It's also one of the easiest to manipulate. If you are trying to build credit, start by getting a credit card that has a low limit and pay it off every month.
The key here is to make sure you don't close the account before building up a good history. Many first-time cardholders make this costly mistake, so be sure to remember this when managing your cards.
Factors That Can Raise Your Credit Score
There are many factors that will affect your credit score. Some of these factors are within your control, while others are not. For example, paying all of your bills on time will generally raise your credit score because you're demonstrating reliability by controlling the one factor you can control.
However, if you have a lot of debt relative to your income or have recently declared bankruptcy, this will hurt your credit score. The same is true if you have a hard time managing your debt payments and end up missing payments or incurring late fees.
As you might imagine, this means that the best way to build your credit is to make smart financial decisions and pay all of your bills on time every month. If you do find yourself in debt trouble, there are ways to work through it and raise your credit score again.
For instance, if you need to take out a loan for something important like buying a home or starting a business, it's possible to use strategic debt stacking to help manage the riskier aspects of borrowing money.
This involves taking out one large loan with low-interest rates that covers everything rather than taking out loans for each purchase individually with higher interest rates that come with more fees and restrictions. Smart debt management goes a long way.
High Income-to-Debt Ratio
As we've already covered, one of the most important factors in your credit score is your income-to-debt ratio. Lenders want to know that you have enough income to make your monthly payments on time, regardless of your size.
To do this, you take the total amount of money that you bring in every month. You want to divide that figure by how many monthly bills you have. If you're having trouble making ends meet with a low income-to-debt ratio, then it's time to take a look at your finances and find ways to save money.
Low Debt-to-Income Ratio
If you have a high debt-to-income ratio, it means you spend more than you make. The higher your DTI, the less likely it is that creditors are going to offer you lines of credit or loans. On the other hand, if you have a low debt-to-income ratio, it shows that you're living within your means and can be expected to be responsible with new credit lines or loans.
It's certainly an essential part of getting that 850 credit score. But will all your hard work and determination pay off? Is it really possible to get a credit rating that high? Keep reading to see whether it's a pipe dream or an achievable reality.
Does Anyone Have an 850 Credit Score?
You might be wondering if anyone actually has a credit score of 850. This is considered a perfect credit rating, so it stands to reason that only a select few have attained it. The truth is that there are some people with a credit score of 850. But it's an extremely low percentage of the population. How low? Let's find out.
What Percentage of the Population Has a Credit Score over 800?
We looked into the data, and as it turns out, the percentage of those with the mythical perfect credit score is low—really low. In fact, out of all of the population in the United States with a FICO Score, only 1.2% hold the elite status of 800 to 850.
It's worth noting that lenders don't typically differentiate between scores in the 800 to 850 range. So even those with credit ratings of 800 are lumped in with those holding perfect 850 scores. Don't let this deter you from working toward your own perfect score. With hard work, you too can get there.
Your credit rating is one of the single most important numbers of your life. If you are set on climbing to a credit score of 850, it's going to take a lot of hard work and determination. Use this guide wisely, and it just might help you achieve your goal.
Learn More: An 800 Credit Score: How To Get It
Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on Forbes, The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.