What is the Highest Credit Score?

A credit score is often at the center of focus when financial institutions determine your financial health and credibility. If you ask someone, they’d reply vaguely that the more you have, the better. But how much is “more” and what is the highest credit score you can have? And the bigger questions, how to reach the highest score? In this article, we’ll answer a few of these questions for you in detail.

What is the Highest Credit Score?

A credit score is a score given to every person that measures their ability to pay back the borrowed money. The most common rating agency is FICO in the United States. Your FICO (Fair Isaac Corp.) score can be anywhere from 300 to 850. So, the highest credit score you can have is 850. The score culminated from reports from three credit reporting agencies, namely, Experian, TransUnion, and Equifax.

The other important credit rating agency is VantageScore.

There are different scoring models for specific industries where the scores go up as high as 950. As an average user, you shouldn’t be bothering them.

FICO and VantageScore have their own credit scoring models, independent of each other. As you’ll see later, various factors are taken into account when calculating the score. Moreover, the scores fluctuate from time to time because a score is like a snapshot of the moment, i.e., it tells your credit score at the given point of time. At the next moment, it might be something else but should be close enough not to make much of a difference.

Banks and financial institutions send a request to the credit reporting agencies to learn about your credit score and credit history. If they’re satisfied, then they’ll hand out the loan to you. That’s why people say, the more your credit score, the better. But you should know that 850 is the highest credit score and about 1% of the consumers reach that score.

Why Does Your Credit Score Matter?

Your credit scores matter because that’s the institutionalized metric adopted by financial institutions when deciding whether or not to lend you credit. When you walk into a bank to submit a loan application or do it online, your bank manager will send a request to the credit scoring agencies to obtain your credit score. If your score is lower, then he or she will probably reject the request or impose a higher interest rate, whichever suits their own business model.

Alternatively, a good score means you’re more likely to pay the loan amount on time. This also means that you’re responsible for your finances. Both of these will help develop confidence in them to lend you the money. And if possible, offer at a lower rate.

The credit score is not only limited to banks. It is also adopted by insurance companies, auto dealerships, homeowners – basically at any place that has to do with lending money.

Here’s what different scores would mean:

• 300 – 629 – Bad credit
• 630 – 689 – Fair credit
• 690 – 719 – Good credit
• 720 – 850 – Excellent credit

To get access to the loans quickly, you should always try to be in that 690-850 range.

Benefits of Having a High Credit Score

 When credit score holds such great importance in the financial community, its benefits must be plentiful. And that’s the case. You will always be rewarded for scoring a high credit score at any given point in time. With a high credit score, you’ll be able to:

Get loans faster

 With a high credit score, your loan application will be approved faster. This is because banks will have more confidence and trust in you that you’ll return the money on time. Whether it be a car loan, education loan, personal loan, or home loan, you can expect faster processing. 

Get loans at lower rates

Not only faster processing, you can also expect lower interest rates. Banks like to retain customers who have a good credit score. Thus, to entice such users, they may offer a lower than usual interest rate on your loan amount. But this is at the sole discretion of the bank. 

Get credit cards with high rewards

With a good credit score, you’ll get credit cards that offer rewards every time you use it. Please note that your credit card does hugely affect your credit score. Therefore, use it with caution even when there are irresistible rewards on offer. 

Get lowest rate mortgage

When you’re buying a house and decide to take up a mortgage, your financier will most likely offer you a lower rate than market value. 

Negotiate a lower credit card rate

After months or years of fair usage, you can negotiate lower credit card fees with your issuer. This is even more beneficial when you’re carrying a balance.

Refinance your loan

If you’ve improved your credit score since you took out a loan, you might be able to refinance it at a lower rate.

Besides the above, you’ll receive similar benefits at each stage of your financial transactions where there are borrowing and lending involved.

Factors That Determine Your Credit Score

Now that you know what you can do with a high credit score, here comes the important part: what factors exactly determine your credit score?

Different factors are taken into account when calculating your credit score, some of which are not disclosed to the general public. But both FICO and VantageScore make it clear that five factors matter more than others. Those are:

Payment history

How you’ve been clearing your dues over a period of months and years is the most important factor when deciding your credit score. Therefore, you’re advised not to miss your payment dates and carry a balance.

Amounts owed

The total amount owed is also an influential factor. The more the amount, the lesser will be your credit score. Credit cardholders are asked not to spend more than 20-30% of their limit.

Length of credit history

This is the total time period for which your credit score is recorded. So, if your credit score was calculated from 2010 onwards, then in 2020, your length of credit history will be 10 years. 

New credit

The new credit or loan amount available to you means you have a good score.

Credit mix

If you have different types of credit accounts like a credit card, student loan, car loan, then it will be beneficial for your credit score.

According to FICO, Payment History constitutes 35% of the credit score, while Amounts Owed contribute 30%. Length of credit history determines 15% of your credit history, and New Credit and Credit Mix determine 10% each.

How to Have Your Credit Score Above 800?

To be in the 800+ credit score club, your credit report should look similar to the one below:

• Existence of credit history for at least 25 years
• Owes not more than $3,500 on credit cards
• Use no more than 7% of the credit limit
• No presence of default or late payments on credit reports, at least not recently

Conclusion

 Summing up, to have a good credit score, you should always take out a low loan amount and pay it off sincerely without defaulting. Over time, your credit score will improve.

Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

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