The average American credit score has never been higher at 716, according to FICO. It’s up by two points from the previous year and six from 2020. That places the average score firmly within the credit monitoring company’s “good” range.
While this achievement is worth celebrating, it’s worth noting that “good” credit encompasses scores 670 through 739 in a scoring model that ranges from 300 to 850. That places the average score far behind perfect credit.
That perfect score, one of 850, is an exclusive club. Stats suggest that 20% of Americans have “exceptional” credit (or scores between 800–850), while just 1.6% of consumers have that VIP number of 850.
Having a perfect score isn’t the ultimate goal of borrowers, but it does make life a lot easier. A score as high as that impressive 850 simplifies borrowing, moving, getting a job, and even securing affordable insurance premiums.
If you want to make life easier, you want a perfect score for yourself. But how does one do it? Well, it’s nothing you can inherit, buy, or avoid by never borrowing — it’s the result of long-term financial habits that build positive history.
Almost everyone borrows money at some point in their lives — here are some things you can do to become part of that 1.6% when you do.
Never Pay a Bill Late
Paying your personal loan and line of credit bills on time is crucial to earning top marks on your file. It’s the surest way to keep negative history off your record.
Everyone knows missing every bill is bad for your credit. But even just one missed bill may have the power to dock as much as 180 points from your score.
Knowing when and how much you owe is important to insulate your score. Your payment size and schedule should be something you consider when you first learn about your online borrowing options while shopping for personal loans. You should never accept a personal loan that you can’t afford, as you increase the chances you miss a payment and do damage.
Don’t Max out Your Revolving Accounts
Unlike personal loans, your revolving accounts (a line of credit, for example) offers you a credit limit that you’re free to withdraw against. You may use as little or as much of this limit as you like; however, maxing it out is never a good look.
Maxing out your limits also maxes out your utilization ratio, one of the key components of your score. Generally, you should never spend 30% of your limit on a regularly basis if you want a good score. However, people with perfect FICO scores rarely use their full revolving accounts. In fact, they generally use 7% or less at any given time.
Pay More Than the Minimum Payment
Keeping your utilization rate low depends on how often you rely on the minimum payments on your revolving accounts.
Generally speaking, you should only pay the minimum in emergency situations, when you can’t afford your full bill. Otherwise, you should always try to pay off your balance in full.
This is easier when you get into the habit of budgeting. When you budget your spending, you’re less likely to splurge on something you can’t afford to pay off in one go.
Accept Revolving Account Increases
Your utilization ratio compares values — your credit use to your credit limit. One way to keep your ratio low is by keeping your use low; however, you can also impact your ratio by increasing your limit.
Compare the different scenarios:
You have a $3,500 balance on a $5,000 line of credit. The utilization ratio here would be 70%, well over the recommended 30% benchmark.
However, the same $3,500 balance on a $15,000 line of credit would work out to be 23%.
Lowering your usage and increasing your limits in tandem will have an even greater effect on your ratio.
Keep a Variety of Financial Products
It may seem strange to think you need plenty of accounts in your name, but a variety of accounts could be a good thing, provided each one is in good standing. Variety shows you can handle a diverse range of debts responsibly, which looks good to future lenders. It indicates you can handle almost anything.
Don’t Be Hasty
While variety is good, don’t rush out to open as many new accounts as possible. For one, thing multiple open accounts can be hard to handle. For another, scoring models reward borrowers who are consistent — especially consistently responsible. Consumers with that perfect 850 tend not to open or close their accounts frequently.
The Takeaway: A Perfect Score is a Long Game
A perfect 850 is not something you can earn instantaneously, but it is achievable. With time and dedication to the habits above, you can add positive history to your file and improve your average American credit score.
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