Most people in the financial services industry have never seen a perfect credit score, and a lot of consumers think it is impossible to achieve.
However, David Howe, president of SubscriberWise has proved the skeptics wrong. After obsessing over his credit score for years, Howe has become the first (known) consumer to achieve simultaneous perfect 850 FICO scores from all three credit bureaus as well as a perfect 990 Vantage score.
I recently had a chance to speak with Howe about how he achieved the perfect score, so here are some of his insights on the matter and whether or not a perfect score is meaningful to consumers.
Perfect scores can be achieved
According to Howe, who stresses that he is not a FICO expert, perfect credit scores are not as elusive as people think, but they definitely go beyond simply paying your bills on time and not running up too much credit card debt. The top score requires a "perfect storm" of credit strategy and life situations.
For example, in order to have a perfect credit score you must have no credit inquiries whatsoever within the past year. You'll also need one active revolving account (like a credit card) that you actually have a balance on, as well as one active installment loan, such as a mortgage.
In other words, if you carry a zero balance on all of your credit cards or don't have a loan, it's impossible to achieve a perfect score, according to Howe.
To illustrate this, Howe showed me two of his personal credit reports -- one from April 2 and one from April 3 -- so a day apart. His FICO score on April 2 was an 849 (one point shy of perfect) and had one small credit card balance and a mortgage that was nearly paid off. On April 3, his score dropped by 25 points to 824 simply because the report reflected that he paid off the credit card debt.
Also contributing to the perfect score is the fact that Howe has not opened a new revolving credit card account in about 10 years. And he knows exactly when all of his credit card statements close and report balances (these dates can be different), and when his accounts update on his credit report.
But is it worthwhile?
Not really. A FICO score about 760 is generally considered "top tier" by virtually any lender, so having a score of 850 or even 820 as opposed to 780 isn't going to help you get a better interest rate or qualify for a purchase you otherwise wouldn't be able to.
However, Howe stresses that people should maximize their credit score as much as possible to provide a cushion that can absorb any of life's events. Things happen, and people sometimes need to apply for mortgages or other loans, or need to make use of their credit. After all, that's why we have credit in the first place -- in case we need it.
For example, Howe says that if you need to pay for a big purchase by maxing out one of your credit cards, it could drop your credit score by as much as 50 points. Well, if your credit is just into the highest level (say, a 765), this could drop you down into a credit level where you may not get the best interest rates and loan terms.
On the other hand, if you work hard and maximize your score to something in the 800's, a 50 point drop would still leave you in the highest tier.
How to maximize your own credit score
Fortunately, FICO provides some guidance on how to maximize scores and also shares some of the habits of the highest achievers.
Scores are made up of five categories of information, including your payment history and the amounts you owe, as well as the age of your accounts, any new credit, and the mix of credit accounts you have.
To maximize your score, consider how other people were able to achieve FICO scores of 800 or more. For one, the average high achiever uses less than 7% of their available credit, so if you have $10,000 in available credit, try to keep your balances under $700.
And a big part of maximization is time. The average high achiever opened their first account 25 years ago, and has an average account age of 11 years. So, by opening very few new accounts, the average age of your credit accounts will improve over time and will boost your score.
As I said before, the whole point of credit is for it to be there when you need it. So, if you need to apply for a mortgage or need to use your credit cards to pay for an unexpected expense, go for it. By maximizing your credit score in the meantime, you'll ensure that when you need it your credit will be there and will get you the best rates and loan terms.