The perfect credit score, also the most daunting to reach, is 900. However, it is a lot easier to get there, if we follow a foolproof four-step mantra churned out by finance professionals to mount the seemingly unsurmountable. A credit card score is a number that usually falls in the most-commonly-used FICO range of 300-900, 900 being the highest. This score comes handy to lenders like banks and NBFCs who use your credit score as an indicator for your loan repaying capability. Three main credit information bureaus provide these credit score reports- TransUnion, Equifax, and Experian.
Let us delve deeper into the factors determining your actual credit score-
- 35% payment history- It determines how reliable a person is. The ones with late payments suffer on their credit score.
- 30% amounts owed- The amount one owes, and the credit available, together are important deciding factors of credit score.
- 15% length of history- Older accounts are synonymous with a better credit score since they mean that you are reliable.
- 10% kinds of credit- If one operates through multiple lines of credit, he/she will have a higher credit score.
- Taking a microscopic look at the different ranges of credit score and what one might interpret from it-
- 800-900 – This is the safest spot to be for your credit score. Securing a home loan at amazingly low rates is no more an issue here.
- 740-799 – This being the second spot is not perfect, but not wrong either. One will still have rock-solid interest rates for loans, credit cards, and apartment rents.
- 670-739 – Although this range does not ring the alarm, you must try to do everything to up your credit score.
- 580-669 – This range invites worries for an individual since he/she is now considered a “subprime borrower.” One might be outright denied a home mortgage, and the interest rates are also likely to be high.
- 300-579 – You are likely to be denied any type of loan and won’t be allowed to apply for credit cards.
How to reach a perfect credit score-
- Always pay on time- Payment history is the numero uno influencing factor for a credit score, especially according to FICO standards. To ace this aspect, one must set up a calendar reminder or enroll in automatic payment methods. Although delinquencies might stay as a blemish on your credit report for up to seven years, its impact on credit score strains over time.
- Optimize your credit utilization ratio- Credit utilization ratio is a measure of the balances one owes relative to one’s credit card limits. To stay below the famous 30% limit, one must focus on shrinking the balances owed while maintaining the credit available.
- Be strategic about new debts and closing accounts- Credit scoring models analyze your credit balances and outstanding loans. The general notion is to keep the debt load low, credit, and loans to the minimum. Finally, one must think against closing an existing account, since having older accounts may help boost your credit score.
- Hold onto your cards- It is a common practice amongst top credit score holders to hold their cards for decades because 15% of our credit score is determined by credit history.
- Checking your Credit report: This is one of the critical factors. There can be some amount of unseen and unknown errors present in the report. In case of unforeseen events like fake credit card fraud has to be duly informed to the bank. As a result, it is advised to check your credit report throughout the year. Timely corrections can solve the matter and improve the credit score.
See also Attention: Reasons Why Borrow Money
Thus, the steps to achieve a perfect score is an easy one, if you take out the time and direct your energies towards the right direction keeping in mind the four simple steps mentioned above. Get rid of past debts, hold onto your cards for as long as possible, optimize your credit utilization ratio, and find ways to automate your finances.
As a result, we can conclude that by following a consistent and responsible financial behavioral, we can reach the level of the perfect credit score. Some of these factors can include clearing all past credit inquiries, a small balance on a credit card, a well-established credit history.