by Elizabeth Aldrich | Updated July 21, 2021 - First published on Dec. 2, 2019
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If you've ever wondered what it takes to get excellent credit, here's your answer.
Credit scores can feel like a bit of a mystery, especially when it comes to achieving excellent credit.
Luckily, the Consumer Financial Protection Bureau's (CFPB) latest Consumer Credit Card Market report sheds some light on the habits of consumers with superprime credit, defined by the CFPB as scores of 720 or greater.
Here's the dish on everything that stands out about these credit superstars, from how many credit cards they own to what their balances look like and why it matters for you.
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If you're still under the impression that avoiding credit cards will help your credit score, the report data crushes that myth.
The report shows that almost half of all credit cards issued in 2018 were opened by consumers with superprime credit. More than 95% of consumers with superprime credit have at least one credit card, strongly suggesting that credit cards are instrumental to achieving excellent credit.
In fact, the average American with superprime credit has four open accounts, so you shouldn't worry that getting a second, third, or even fourth credit card will damage your credit. Signing up for a new credit card could eventually boost your score, as long as you're committed to paying off your bill in full each month.
This makes sense, given that your payment history, length of credit history, and mix of credit are all critical factors in how your credit score is calculated, and each can be improved through the long-term, responsible use of credit cards. Holding multiple credit cards can also improve your credit utilization ratio, another important factor, by increasing your overall credit limit.
At the end of 2018, the average balance for superprime consumers was almost $5,000 on their general-purpose cards, compared to around $9,000 for consumers with prime credit, or a score between 660 and 719.
This is more a reflection of how much consumers use their credit cards than how indebted they are, though, because they could still pay off their balance before the bill is due -- which the majority of people with excellent credit do. In fact, they pay way more than the minimum each month.
Only 30% of superprime accounts maintain a balance from month to month, as opposed to nearly 70% of prime accounts, 80% of near-prime accounts, and close to or more than 90% of accounts belonging to consumers with bad credit. Also, the average superprime consumer pays off nearly half of their balance each month, compared with 15% for the average prime consumer.
Herein lies what's arguably the biggest and most telling gap between folks with excellent credit and the rest of us: They pay off their balances in full, or as close as possible, each month.
If you're wondering what the point of getting your credit score above 720 is in the first place, the CFPB report offers some insight.
People with excellent credit are significantly more likely to be approved for credit and be offered credit at an affordable rate. The credit card approval rate for consumers with superprime credit is about 80%, compared to the average overall approval rate of just 40%. Perhaps more importantly, consumers with credit scores above 720 get a 12% average effective interest rate on general-purpose credit cards, whereas folks with a credit score of 660 to 719 are offered an average interest rate of about 17%. From there, as credit scores drop, average interest rates start to approach or exceed 20%.
This is a huge difference when it comes to the cost of credit. If you're paying off a credit card balance of $3,000 at $100 per month, a 12% interest rate means you'll pay off your debt in three years and end up spending a total of $585 on interest fees. At a 17% interest rate, it will take you 40 months and $934 in interest fees to pay off your balance. In other words, increasing your credit score from good to excellent would save you almost $350 on that debt.
If you want low interest rates and the best credit cards, it's clear that good credit is the way to get there. If you use a few credit cards regularly and pay them off each month, you'll be on your way.
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