How and Why to Get a Perfect Credit Score

Your credit score is one of the key factors that will have an impact on your long-term financial position. To get a perfect credit score takes diligence and some key decisions.

Credit scores are used by everyone — cell phone service providers, landlords, credit card companies, insurance companies, and mortgage lenders — to determine your creditworthiness as a consumer. In some cases, it can mean getting or not getting a job offer.

A credit score could be anywhere from 300 to 850, while the average credit score in the United States is 687. If you have a “low” credit score (that is, between 300 and 500), you are seen as a high-risk consumer. A “high” score (700 and above) means you are seen as a low-risk consumer.

Advantages of having an 800 credit score

A credit score of 800 and above usually comes with a host of privileges. Some of them include:

  • Many landlords these days check the credit reports of potential tenants before renting out a place to them. If you have a high score you are not likely to be turned down by anyone and can rent any place you want.
  • Credit card companies offer a wide range of perks for people with an 800+ credit score — bonus reward points for opening a credit card, free concierge service, complimentary access to airport lounges, higher credit limits, lower interest rates, cash back on purchases, no fees on foreign transactions, and many more.
  • Insurance companies tend to check your credit report to determine your overall insurability. If you have a high score you are typically charged a lower rate, which means you can save a lot of money on premiums.
  • Some employers run a credit check on applicants as part of the screening process, especially if the position requires you to deal with the company’s finances. In such cases, the candidate with the highest credit score is often preferred, all other factors being equal.
  • If you have an 800+ credit score your loan applications get approved faster. You can also qualify for the lowest rates possible on mortgage loans. Basically, you can walk into any financial institution and get what you want.

How to get a perfect credit score?

Given here are six strategies that can help you achieve and maintain an 800+ credit score.

Pay all your bills on time

Your payment history is undoubtedly the most important factor which determines your credit score. If you have a history of making late payments your credit score can be affected very badly.

One of the important axioms of personal finance is that no bill is too small — be it a utility bill, cable bill, or magazine subscription. If you pay it late, it can affect your credit score. So, it is paramount for you to pay all your bills on time – whether it is a $15 subscription fee or a $1,500 mortgage payment.

Build a long credit history

The length of your credit history is yet another key factor that contributes to your credit score. The longer your credit history, the higher your score is likely to be.

Conversely, a person with a short credit history is generally seen as a high-risk consumer by many lenders. Thus it is a good idea to keep your old accounts open and use them as much as you can.

Do not max out your credit cards

It is not a good idea to max out your credit cards, especially if you cannot afford to pay the bills in full. Maxing out your credit card and carrying a large balance from one month to another can be disastrous in the long run for two reasons.

First, it adversely affects your credit score. Second, you will probably end up paying thousands of dollars in interest alone.

The best way to avoid this problem is to maintain a healthy credit utilization ratio, which is typically 30% or less.

You can calculate that by dividing your debt by your credit limit and multiplying the resulting amount by 100.

For example, if your credit limit is $10,000 and if you have a balance of $2,800, your credit utilization ratio is 28% (2,800/10,000 x 100).

Ideally, you should keep your credit utilization ratio in a healthy range (between 10% and 30% of your total credit limit) and pay off the bills in full every month without leaving any balance.

Do not open too many credit cards

It is perfectly okay to have one or two credit cards, as long as you keep track of your spending and do not carry a large balance month after month.

Opening up too many credit accounts is usually not a good idea, as you might not be able to keep your expenditure in check. Moreover, applying for too many credit accounts in a short period of time can have an adverse impact on your credit score.

Diversify your accounts

Diversifying your accounts can help you improve your credit score to some extent. The most common options include retail accounts, credit cards, auto loans, student loans, and mortgage.

At the same time, you should not take out more loans just for the sake of diversifying your accounts. You should get a loan only when you need it and if you can afford to pay it back.

Avoid additional liabilities

You are liable for your own debts. Why take up the additional burden of other people’s debts too? It is precisely what you do when you co-sign a mortgage or any other type of loan.

As a co-signer, you are responsible for paying the loan if the borrower is not able to do so. Being a co-signer or guarantor of someone’s loan — especially if it is a large amount — can affect your credit score adversely. So you should avoid it by all means.

The need to protect your credit score

It is important to remember that your credit score is not set in stone. It tends to change from time to time, depending on your spending habits, payment history, and a number of other factors.

One way to consistently maintain an 800+ credit score is to use a credit score monitoring service. They can keep track of your credit score and notify you if it starts to slip, so that you can take steps to improve it again.

Having a perfect credit score comes with its own risks too, as you become the target of identity thieves. To secure your identity, consider an identity theft protection service. In case of a suspicious activity, you will be alerted right away.

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