What is a perfect credit score? Using the popular FICO scoring method, the magic number is 850, which is difficult, but not impossible to achieve. By learning how the FICO formula works, we can get some insight on how to get an 850 credit score, or close to it.
How the FICO formula works
Unfortunately, the specific formula by which FICO determines your credit score is a closely guarded secret. However, we do know the general composition of the formula, which gives us some insight on how to maximize our credit score.
Here are the five categories of information that make up your FICO score, their respective weights, and some specifics on what each category emphasizes:
- Payment history (35% of your score) -- The largest category is also the most straightforward. If you pay your bills on time each month, 35% of your score will take care of itself.
- Amounts owed (30%) -- This mainly focuses on the amounts you owe relative to your available credit or original loan balances, as opposed to the actual dollar amount of debt you carry. In other words, a consumer who still owes $400,000 on a mortgage which was originally for $1 million would look better than someone who owes $100,000 on a $110,000 mortgage, even though they owe four times as much.
- Length of credit history (15%) -- This category looks at several time-related factors, including the age of your oldest account (whether it's still open or not), the average age of your credit accounts, and the ages of individual accounts.
- Mix of credit accounts (10%) -- Creditors want to know that you can handle a variety of debt obligations, not just one. For example, someone with a mortgage, auto loan, and credit card all in good standing could have an advantage over someone with just a credit card.
- New credit (10%) -- This category includes the number of times you've applied for credit within the past year, as well as any accounts you've opened that are considered to be "new." As your inquiries get further into the past, and your newest accounts age, this category will improve.
There isn't just one credit score
90% of lenders use some variation of the FICO score when making lending decisions, so it's safe to say FICO is the credit score to keep track of.
However, keep in mind that there's not just one version of the FICO score. For starters, each of the three major credit bureaus (Equifax, Experian, and TransUnion) all have their own FICO scores, and your lenders might look at just one or all three. For smaller credit accounts like credit cards, the lender tends to look at just one, while mortgage lenders generally look at all three.
Additionally, there are several editions of the FICO score. The most recent one, "FICO Score 9" made several changes from previous versions in the way it considers medical debt and paid collections, but many lenders still use version eight or earlier. There are also purpose-specific FICO scores designed for mortgage lenders, auto lenders, and others.
The point is that even if you check and have a perfect FICO score, that doesn't mean all of your scores are perfect. It's extremely difficult to have across-the-board perfect scores.
So, how do you get a perfect score?
To be clear, a perfect score is extremely difficult to achieve. Even if your credit behavior is seemingly "perfect," you can still be short of the magic 850.
Since we don't know FICO's exact formula, the best way to figure out how a perfect score can be achieved is to look at the credit behavior of someone who's done it. In 2014, I wrote an in-depth article about David Howe, president of SubscriberWise, who achieved simultaneous 850 FICO scores from all three bureaus.
According to Howe, a perfect credit score requires a "perfect storm" of credit strategy and life situations. In other words, it's not as easy as simply paying your bills and keeping your balances low.
At the time he achieved the perfect scores, Howe hadn't opened a credit card in about 10 years, no credit inquiries on his report, and small balances on two accounts -- a credit card and a mortgage. He also knew the exact data when his credit card statements closed and report their balances, and when each bureau would update his accounts.
Howe also pointed out that having no credit card debt can hurt your chances at a perfect score. He shared two of his personal credit reports with me. One showed a score of 849 (a point shy of perfect) and a small credit card and mortgage balance. By simply paying the credit card off, with no other changes, his score dropped to an 824 as soon as the report was updated.
Perfect isn't necessary, but it's a good idea to maximize your score
To be perfectly honest, it's not really necessary (or practical) to strive for the perfect score. Having an 850 may impress whoever checks your credit, but it won't get you a better interest rate or more opportunities for credit than someone with an 800. In fact, a score of 760 or higher should put you in the top-tier for pretty much any loan you apply for.
However, it can be a good idea to maximize your credit score, which means to consciously make decisions that will boost your score (but not to obsess over every point) and avoid behaviors that will lower it. After all, simply the act of applying for new credit or taking out a new loan can drop your score by a considerable amount. So, the highest practical goal should be a score than can absorb something like this while remaining in the top (760+) tier.
For example, if you call your credit card issuer and ask to raise your limit, it could improve your "amounts owed" category relative to your available credit. Here are some other suggestions to boost your score, if you're interested.
The bottom line is that perfect credit scores do exist, but you shouldn't obsess over perfection. A score that's in the upper 700s or lower 800s will qualify you for the best interest rates and will provide enough of a cushion that you can still use your credit without fear of it dropping, so that's the range most people should aim for.
