What is an Excellent Credit Score and Why is it Important?
Harrison Pierce is a writer and a digital nomad, specializing in personal finance with a focus on credit cards. He is a graduate of the University of North Carolina at Chapel Hill with a major in sociology and is currently traveling the world.
At a Glance
An excellent credit score falls into the top range of credit scores (usually between 800-850). Having this score demonstrates a high level of responsible financial management. It can give you more favorable loan rates and terms, lower insurance premiums, and improved job prospects.
Obtaining an excellent credit score requires consistency and patience; making payments on time and keeping debt balances low are key factors in building up to it. For those looking to improve their finances, focusing on improving their credit score is a great place to start on their path to financial freedom.
In this article, you’ll learn:
What is an excellent credit score?
An excellent credit score is typically considered to be a FICO score of 750 or higher. Lenders often use this score to indicate creditworthiness and ability to repay debt. A high credit score may make obtaining loans, credit cards, and other types of credit easier with favorable terms and lower interest rates.
Related: Credit Score Ranges
Why is having excellent credit important?
Having excellent credit is important because it can significantly impact your financial life in several ways:
- Access to credit: Lenders are more likely to approve loan applications from people with excellent credit and may offer more favorable terms, such as lower interest rates.
- Lower borrowing costs: People with excellent credit can often obtain loans and credit cards with lower interest rates, saving them money over the life of the loan.
- Better insurance rates: Insurance companies may use credit information to help determine premium rates for homeowners, car, and health insurance.
- More straightforward rental process: Landlords and property management companies often check credit reports as part of the application process. A good score can make it easier to rent a home.
- Improved financial stability: Maintaining a good credit score takes discipline and responsible behavior, which can lead to improved financial stability over time.
Therefore, an excellent credit score can positively impact various aspects of your financial life, making it easier to access credit and saving you money in the long run.
How can you get an excellent credit score?
To achieve an excellent credit score, you can take several steps to demonstrate responsible credit management to lenders. First, make sure to pay your bills on time, as late payments can significantly impact your score. It’s also essential to keep your credit card balances low and make payments in full each month, as high balances can negatively affect your score.
Additionally, avoid applying for new credit too frequently, as each time you apply for credit. It generates a hard inquiry on your report, which can lower your score. Another factor to consider is maintaining a healthy mix of credit types, such as a credit card and a loan, as this can demonstrate responsible use of credit to lenders.
1. Make timely payments on all bills
Making timely payments on all bills is a key factor in achieving an excellent credit score because it demonstrates to lenders that you are a responsible borrower who can manage your finances effectively. Late payments can negatively impact your credit score by indicating to lenders that you may struggle to repay debt promptly. On the other hand, consistently making payments on time shows that you are reliable and can be trusted to repay debt. This can lead to a higher credit score and better credit standing over time, making it easier for you to access credit with favorable terms and lower interest rates. Additionally, paying bills on time can help you avoid late fees and potential damage to your credit report, further strengthening your credit standing.
2. Maintain a low credit utilization
Maintaining a low credit utilization rate is another important factor in achieving an excellent credit score. Credit utilization refers to the amount of credit you use relative to your available credit limit. A high credit utilization rate can indicate to lenders that you are relying heavily on credit and may be overextended, which can negatively impact your credit score. On the other hand, a low credit utilization rate demonstrates that you are using credit responsibly and have reasonable control over your finances.
Lenders prefer to see a credit utilization rate below 30% on each credit card and in total. Keeping your credit utilization rate low sends a positive signal to lenders, indicating that you are responsibly using credit and have the means to repay debt. This, in turn, can lead to a higher credit score and improved credit standing, making it easier for you to access credit with favorable terms and lower interest rates.
Learn more: How to Lower Your Credit Utilization Ratio?
3. Try limiting the number of credit inquiries
Limiting the number of credit inquiries is vital in achieving and maintaining an excellent credit score because each time you apply for credit, it generates a hard inquiry on your credit report. A hard inquiry is a record of a lender or creditor checking your credit history, which can negatively impact your credit score. This is because many inquiries too close together can indicate to lenders that you are seeking a lot of credit, which can be perceived as a higher risk.
Too many hard inquiries can lower your credit score, making it more difficult to access credit with favorable terms and lower interest rates. Therefore, limiting the number of credit inquiries is essential to keep your credit score as high as possible. To do this, you can avoid applying for credit unless you really need it, and if you do need to apply, try to do it within a short period to limit the impact on your credit score.
Related: Do Credit Inquiries Affect Your Credit Score?
4. Lengthen your credit history
You can take several steps to lengthen your credit history and improve your chances of achieving an excellent credit score. Here are some of the most effective ways to do so:
- Keep old credit accounts open: Keeping old credit accounts open can help lengthen your credit history and demonstrate a track record of responsible credit management.
- Get a secured credit card: A secured credit card can help you establish or rebuild credit by allowing you to demonstrate responsible credit usage.
- Become an authorized user on someone else’s account: Being an authorized user on someone else’s account can help you benefit from their positive credit history and build your own.
- Apply for a loan: A mix of credit types, such as a loan and a credit card, can demonstrate to lenders that you can manage different credit responsibly.
5. Do not open multiple accounts at once
Opening too many accounts at once can prevent you from getting an excellent credit score because it can indicate to lenders that you are seeking a lot of credit quickly. This can be perceived as a higher risk and may lead to a lower credit score. Each time you apply for credit, it generates a hard inquiry on your credit report, and a high number of inquiries in a short period can harm your credit score.
Additionally, having too many open accounts can make it difficult for you to manage your finances effectively and make it more likely that you will miss payments or exceed your credit limits, which can also negatively impact your credit score.
Therefore, limiting the number of accounts you open and only applying for credit when needed is essential. Doing so can help maintain a strong credit score and demonstrate to lenders that you are a responsible borrower. Remember, building and maintaining an excellent credit score takes time and requires careful management of your credit accounts.
Is it possible to get a perfect credit score?
There is no universally accepted definition of a “perfect” credit score, as different scoring models and credit bureaus use other methods to calculate credit scores. However, 850 is often considered the highest possible credit score.
FICO 850 is considered the highest possible score in the most widely used credit scoring model. A small percentage of people with the best credit history and habits only achieve this rare score.
Even if you have a high credit score, there is no “perfect” credit score, as credit scores constantly change based on your credit history and financial behavior. It’s important to consistently practice good credit habits, such as paying bills on time, keeping balances low, and limiting the number of credit inquiries, to maintain a high credit score and improve your credit standing.
Related: Highest Credit Score Possible
No, the definition of an “excellent” credit score can differ between the FICO scoring model and the VantageScore model.
FICO is one of the most widely used credit scoring models in the United States and is used by many lenders to determine creditworthiness. In the FICO scoring model, a score of 800 or above is considered an excellent credit score.
VantageScore is a credit scoring model developed by the three major credit bureaus, Experian, Equifax, and TransUnion. In the VantageScore model, a score of 750 or above is considered an excellent credit score.
It’s important to note that different lenders and creditors may use other credit scoring models and have different definitions of what constitutes an “excellent” credit score. Therefore, it’s best to check with your lender or creditor to determine what score they consider to be excellent. Regardless of the scoring model used, maintaining good credit habits, such as paying bills on time, keeping balances low, and limiting the number of credit inquiries, can help you achieve and maintain a high credit score.
Several factors can affect your credit score, including:
- Payment history: Late or missed payments can significantly negatively impact your credit score.
- Credit utilization: Keeping your credit card balances low and avoiding maxing out your credit cards can help maintain a high credit score.
- Length of credit history: A longer credit history can demonstrate a track record of responsible credit usage and help improve your credit score.
- Types of credit: A mix of different types of credit, such as a mortgage, car loans, and credit cards, can demonstrate to lenders that you can manage other credit responsibly.
- New credit: Applying for a lot of new credit in a short period can be perceived as a higher risk and negatively impact your credit score.
- Credit inquiries: Each time you apply for credit, it generates a hard inquiry on your credit report. A high number of inquiries in a short period can indicate to lenders that you are seeking a lot of credit, which can negatively impact your credit score.
It’s important to understand that all of these factors are considered when determining your credit score, and each aspect can have a different weight depending on the scoring model used.
Related: How is your credit score calculated?
The amount of time it takes to reach an excellent credit score can vary depending on several factors, such as the starting point of your credit score, your credit history and habits, and the specific credit scoring model used.
Generally, it can take several months to a few years to establish a strong credit history and improve your credit score. However, some people may be able to improve their credit scores more quickly by consistently practicing good credit habits, such as paying bills on time, keeping balances low, and limiting the number of credit inquiries.
On the other hand, negative actions like missed or late payments or high levels of credit card debt can quickly lower your credit score and take longer to improve.
It’s essential to be patient and consistent in your efforts to improve your credit score. A good starting point is to obtain a copy of your credit report and regularly monitor your credit score to track your progress and identify areas for improvement.