Your credit score is a number given to you based on your overall financial situation, which includes your debt-to-income ratio, your paid and unpaid balances and how you’ve handled your debts. It’s been said that a FICO score of 850 is the perfect credit score; however, this score has been the topic of much debate. While some say it is possible to have a score of 850, others say it is not only not possible but also not necessary because one at least 760 can garner you the same benefits as an 850. Read this article and learn a little about how credit scores work and the best way to achieve, if not a perfect score, a score close to perfect. 

What is a Credit Score?

Before going any further, let’s get into exactly what a credit score is and what it means to you as a consumer. A credit score is a number that’s assigned to you based on your financial situation and how you handle your financial obligations. Credit scores can vary from as low as 300 up to 850. Obviously, 300, which is the lowest credit score, is considered very poor and 850 is considered perfect. The three major credit reporting agencies are Experian, TransUnion and Equifax. 

Your credit score is not only the first thing a creditor checks when you apply for credit but it’s also generally the most important factor when determining if you’ll be approved for credit. When applying for loans, your credit scores determine if you’ll get the loan and also play a role in the type of interest rates you’ll be charged. Generally, the higher the score, the lower the interest rates you’ll be charged. Credit scores are used by banks, lending institutions, landlords, cell phone carriers and even insurance companies. 

What Determines Your Credit Scores?

Although your credit scores are determined by your financial situation and how you pay your bills, some things play a more important role in your credit scores. Below you will find the different things that help determine your scores. 

• 35% - Payment History - This is how you pay your bills now and for the past few years. Have you ever been 30 days late? 60 days? 90 days? All these things affect your score. 
• 30% - Amounts Owed – Are your credit cards maxed out? Do you have low balances on your loans and other accounts? FICO recommends not utilizing more than 30% of your available credit. 
• 15% - Length of Credit History – The longer you have a credit history, the better your chances of improving it. Often, no credit is equal to poor credit.
• 10% - New Credit – The more you apply for new credit, the more your score can decline.
• 10% - Types of Credit – If you have to have credit, it’s advantageous to have different kinds such as loans, credit cards, mortgage, etc., rather than just one type. 

How Can I Get a Perfect Score?

While it may not be entirely possible to have the “perfect” credit score, there are ways you can have score that’s considered very good, if not perfect. The type of credit used was only listed as 10% but it’s very important to have a few different types of credit so it can be determined how you handle each type. However, and this is important, keep them open but keep their balances low. 

One of the most important things when trying to achieve a perfect score is to pay your bills on time and this mean every bill every month. Anytime you’re late on a bill, it’s going to make a negative impact that could take years to correct. 

Many people make the mistake of cancelling out all their credit cards in an attempt to improve their credit scores. Rather than cancel them, just don’t use them. You may find you need a new credit card down the road and this can negatively affect your scores. Your credit scores can’t continue to improve if you have no credit. It’s more important to show you have credit available and handle it wisely than it is to not have any credit.