How High Does Your Credit Score Really Need to Be?

Credit scores range from 300 to 850 under the FICO® Score system, which is the one most widely used by lenders. As is usually the case with any type of score, higher is better. A higher credit score has lots of potential financial benefits, including lower interest rates on loans and access to better credit cards.

That's only true up to a point, though. Even though some people think they should go for that elusive 850, the truth is you don't need a perfect credit score. If you're currently working on your credit, there's a better target to aim for.

How high your credit score really needs to be

A FICO® Score of 760 is as high as you need to go. At this point, you've effectively maxed out the benefits of a high credit score. Your score will be good enough to qualify for the lowest interest rates, the top credit cards, and pass just about any credit check.

It might seem strange and illogical at first. After all, 760 is a far cry from 850. But lenders group consumers by credit score ranges, not their exact credit scores.

Let's say you're applying for a mortgage. The highest score range that mortgage lenders use is 760 to 850. Here's the full list of credit score ranges used by conventional mortgage lenders:

• 760 to 850
• 700 to 759
• 680 to 699
• 660 to 679
• 640 to 659
• 620 to 639

You'll qualify for lower mortgage rates with a FICO® Score of 770 compared to a score of 740, because those are in separate ranges. The same is true with a score of 710 compared to 690. On the other hand, it makes no difference if your credit score is 770 or 790. They're both in the 760 to 850 range, so they get you the same rates.

With other types of financial products, you have even more flexibility. You can typically qualify for the lowest rates on personal loans with a score of 720 or higher. That's also high enough to qualify for the most selective credit cards.

It's worth noting that your credit score doesn't guarantee approval for any financial product. A score of 760 or higher means you can qualify for the best credit cards and the lowest rates on loans. However, there are other factors taken into account during the application process, as well. It's still possible for your application to be denied, but this is less likely with a high credit score.

Building and maintaining a high credit score

It's good that you only need a credit score of 760, because getting there isn't too complicated. A score of 850, on the other hand, takes a lot of time and micromanagement.

Here are the steps you can follow to increase your credit score:

• Make sure you have at least one credit card. You can build credit with other financial products, such as loans. But a credit card is the best option because you can use it indefinitely, whereas loans only last for a set amount of time. Also, you can use a credit card without any interest charges if you pay your bill in full every month.
• Use your credit card every month. Your credit score goes up when you borrow money and pay it back. By using your credit card for purchases, you're borrowing money, and you can then pay it back by the due date.
• Pay your credit card bill on time and in full. Every on-time payment is a positive mark on your credit file. While any amount that meets the minimum payment requirement works, it's better to pay the entire statement balance on your credit card bill to avoid interest.
• Keep your credit utilization low. The percentage of your credit limit that you use is known as your credit utilization ratio. For example, if you have a $10,000 credit limit and a $1,000 balance, your utilization is 10%. It's recommended to keep this below 30% at all times, and lower is even better.

That's all you need to do to both get your credit score to 760 and keep it there consistently. As you can see, there's nothing complex about building and maintaining your credit score. Once you've established those good habits and gotten your score where you want, you can put your credit on autopilot and focus on other aspects of your personal finances.