Contributing Writer at Tally
March 17, 2020
Author George Fisher once said, "When you aim for perfection, you discover it's a moving target."
Striving for the perfect credit score can be challenging, as your score is always rising and falling. Adding to the complexity of your credit score is the fact that a perfect credit score may not be what you think it is.
Below, we discuss why an 800 credit score is considered perfect on a scale that goes as high as 900 points. But before we dive into that, let's clear up the confusion surrounding your multiple credit scores.
You may be surprised to learn that there are dozens of credit scoring models. Fortunately, there are only two main scoring models lenders use — FICO and VantageScore. In fact, 90% of all lenders use your FICO credit score to determine creditworthiness.
Here are the key similarities and differences between the FICO and VantageScore credit scoring models.
The FICO credit score has been around since 1989 with multiple changes since its arrival. At the time of this writing, the latest scoring model is the FICO Score 9, though many lenders still use the FICO Score 8 model.
There are various scoring systems within the FICO structure. Most people understand the base FICO credit score, but there are also multiple industry-specific scoring models for auto loans, mortgages and credit cards.
Your FICO Score ranges from 300-850 in the base scoring system, whereas the industry-specific FICO credit score range is 250-900.
Another variable to consider when looking into your FICO Score is which credit bureau it came from. There are three main credit bureaus — Transunion, Equifax and Experian — and while they often have nearly identical information, there are usually small differences that result in slight credit score differences.
These scoring variations are why lenders typically look at the middle score when reviewing your creditworthiness. For example, if you have a 650 Transunion credit score, a 675 Experian score and a 680 Equifax credit score, lenders would consider your creditworthiness based on the Experian score.
The VantageScore is far younger than the FICO credit scoring model, as it debuted in 2006 as a joint venture between Experian, Equifax and Transunion.
The VantageScore model uses credit scores ranging from 300-850, just like the base FICO Score. Where the VantageScore differs is that it's a tri-bureau report that combines all three main credit bureaus to create one score. Also, unlike the FICO model, the VantageScore has no industry-specific scoring models.
Given its widespread use in the industry, your FICO Score is what lenders are generally speaking about when they refer to your credit score. And though your FICO Score tops out at 850 in the base model and 900 in the industry-specific models, lenders commonly recognize an 800 FICO Score as perfect.
So, why is an 800 FICO Score perfect when you can still increase it by 50-100 points? A FICO Score of 800 or higher lands in the excellent credit range, and "lenders don't typically distinguish between scores" in this range, according to Experian.
In other words, an 800 credit score is so high that lenders see no reason to treat it any differently than an 850 or 900.
Landing the perfect credit score is no easy task, and even if you do reach it, there’s a chance you won't stay there very long. Your credit score is constantly changing, and that perfect credit score could dip under the 800 mark for many reasons.
If getting the best interest rate or the best rewards credit card is all you're looking for, the highest credit score isn't necessary. A 760 FICO Score or higher will usually qualify you for the best interest rates and many of the most desirable credit cards.
If you're just getting started in the world of credit, or are rebuilding and have 100 or more points between your score and a perfect credit score, you're still fine. Sure, you may not qualify for the best credit cards or interest rates, but you may be eligible for credit cards and loans that you can use to help build your credit score.
In general, a 700 or higher indicates a good credit score for most lenders and is plenty to get approved at acceptable interest rates. Some lenders are even more helpful for those looking to build or rebuild their credit profiles. For example, Tally requires at least a 660 credit score to qualify for its debt-consolidation line of credit.
So, while that perfect credit score is great for your financial ego, you are still in OK shape with a 660 or higher score.
If you have a lower credit score or you're in a good spot but want the comfort of reaching that perfect-credit status, there are a few tips and tricks you can use to boost your credit score.
There is at least one error on 20% of Americans’ credit reports, according to a Federal Trade Commission report. In some cases, these errors can have huge impacts on your credit score.
The Consumer Financial Protection Board recommends pulling your credit report and reviewing it for accuracy at least once a year. You can get a free credit report from all three credit bureaus once per year from AnnualCreditReport.com.
You can also catch errors early on by signing up for one of the many free credit score sites, including Credit Karma and Credit Sesame, and monitoring your credit report there. These sites will alert you when there is a change to your credit file, allowing you to act quickly if there’s an error.
If you spot a mistake on one of your credit reports, immediately file a dispute. During a dispute, the credit bureau will contact the creditor and request evidence of the debt. If the creditor can't produce the required documentation, the credit bureau will remove the item from your file.
Keep in mind, if the error is across multiple credit bureaus, you must file a dispute with each bureau. Transunion, Experian and Equifax outline their respective steps to disputing an item on your report online.
Payment history is the largest factor in the FICO scoring model, as it accounts for 35% of your credit score. You can make payments yourself, but if you have a lot of credit cards and struggle to manage all the payments, you could end up with a late payment and a black mark on your credit report.
You can avoid this type of bad credit by setting up automatic payments with your credit card companies or using a third-party automated payment system like Tally's Credit Card Management app. This app puts all your credit card payments together into one automatic payment and distributes this lump sum across all your cards.
Your credit utilization ratio is the second biggest factor in determining your credit score, as it accounts for 30% of your FICO Score.
The credit utilization rate is the balance on a credit card relative to its limit. For example, if you carry a $2,500 balance on a credit card with a $5,000 credit limit, you have a 50% credit utilization ratio on that card.
Keep in mind that your FICO Score looks at the total utilization rate across all your credit cards when creating your score instead of each card individually. So, if you have two cards with $5,000 limits each and one is maxed out, your credit utilization ratio would be 50%.
A good credit utilization ratio is anything under 25-30%. The lower the ratio, the more of a positive impact it has on your credit score.
You can reduce this credit utilization ratio and boost your credit score using one of the two popular debt-repayment plans — the debt avalanche or debt snowball method. You can further streamline the debt-repayment process using the Tally Advisor, which monitors your interest rates, due dates and balances to create a debt-repayment plan that works for you.
Two more critical factors that help determine your FICO Score are length of credit history and new credit, which make up 15% and 10% of your credit score, respectively. This is one area where inaction is your best option.
Length of credit history measures the average amount of time you've had each account. The higher the average, the more of a positive impact it has on your credit. If you open a new account or close one of your oldest credit accounts, this can lower the average credit history length and harm your credit score.
Opening a new account not only lowers your length of credit history, but it also adds a new credit account to your report. It also likely required a hard inquiry on your credit report, which can result in small negative impacts on your credit score. As such, no matter what attractive offers come your way, refrain from opening a new account.
While a perfect credit score is great for financial bragging rights, there isn’t much benefit to stressing out over it. Instead, strive every day to achieve a higher credit score bit by bit through timely payments, paying down high balances, keeping your spending in check and avoiding new credit.
Following these tips will start paying off with small credit score improvements, and over time, you may hit that magical 800 credit score.