Financial and lending institutions use credit scores to determine how likely someone is to repay a loan. According to FICO, the average credit score in the United States stands at 716, but that number varies significantly by state. Credit scores range from 300 to 850, and each number corresponds to a different level of credit risk.
A high credit score means you’re a low-risk borrower, which could lead to lower interest rates on loans and other lines of credit. On the other hand, low credit scores could mean higher interest rates and a greater chance of not being approved for a loan.
While most people know they have credit scores, they may not understand why these score numbers matter or how they are determined. Read on as we explore how different credit score ranges map to financial situations and tips on how you can improve your credit score.
What Credit Score Ranges Should Mean To You
Different credit score ranges correspond to varying levels of risk. Knowing your credit score is incredibly helpful when it comes to determining whether you will qualify for a loan or credit card.
Credit card companies and lenders use credit scores to determine your loan qualification, credit limit, and applicable interest rate. Lenders often give more appealing interest rates to people with high credit scores because there is a lower chance of the debt not being repaid by the borrower.
Since people with low credit scores are considered high-risk borrowers, they may have trouble getting approved for various financial products, including personal and credit cards. As a result, they could be charged higher interest rates or denied credit entirely.
What Are the Credit Score Ranges?
Credit scoring companies like FICO use multiple credit scoring models to determine your credit score. FICO scores dominate the market, and the most popular versions range from 300-850, with each number indicating how likely you are to be a responsible borrower. Below are the different credit score ranges and what they represent financially:
Commonly used FICO credit scores range from 300 to 850.
Exceptional 800-850
Consumers with exceptional credit scores have consistently excellent credit usage behavior. They have low balances on their credit card accounts, maintain their credit utilization ratios around 10% or lower, and have a long history (decades) of on-time monthly payments. Borrowers within this range are offered higher credit limits and can qualify for lower rates on personal loans, credit cards, lines of credit, and mortgages.
The highest possible credit score you can have on the FICO scoring system is 850. While it is possible to obtain a perfect 850 credit score, it is not necessary to do so in order to get the best credit offers, nor is it a practical goal. Getting an 850 credit score requires that every single credit scoring factor must be perfect, which is simply not possible for most consumers.
Consumers with credit score ranges that are very good or exceptional will get the best interest rates on mortgages and other loans.
Very Good 740-799
A score between 740 and 799 is in the very good credit range. These borrowers generally have good financial responsibility regarding credit and money management. They have lower credit utilization ratios, a good history of on-time payments, and few derogatory marks on their credit reports.
Most lenders are still comfortable extending lines of credit to these borrowers, so people within this range are likely to get approved for loans and other products with favorable interest rates.
Good 670-739
A FICO score falling between 670 and 739 is considered a good credit score. The national average credit score stands in this range. This score indicates that you have generally been responsible with credit in the past and paid your bills on time. You may qualify for average rates, but it may become more difficult to be approved for some types of credit. You’ll likely have to shop around in order to find the best interest rates.
Fair 580-669
Individuals with credit scores within this range are below the national average and may have negative marks on their credit reports. If you have a FICO score in this range, you’ve likely missed payments or shown signs of high credit usage and delinquencies. This means you may not qualify for some types of credit, such as loans or credit cards. Few lenders will likely extend a credit line to you but offer high-interest rates.
Poor 300-580
This range is the lowest credit score rating on credit reports and is considered to be very bad credit. People with a FICO score in this range are seen as high-risk borrowers and may be unable to get approved for loans, lines of credit, or mortgages. They have several cases of missed payments, high balances, and high credit utilization ratios. Poor credit scores may also result from filing bankruptcy or having debt in collections.
“Credit invisibles” are those who do not have a credit score, which can be equally as problematic as having bad credit.
No Credit Score
It is possible to not have a credit score at all, which is known as being credit invisible. If you haven’t had a loan or credit card for several years, your credit score may not be able to be calculated because there is insufficient information on your credit reports.
Lenders may still allow you access to credit based on your other assets, but it usually requires additional verification of your assets and income.
How To Build Credit & Earn A Better Credit Score
Building and improving your credit score can be a challenging but rewarding experience. Your credit score will increase your access to financing products with lower interest rates and fees on everything from loans to mortgages. Below are some tips that can help improve your score:
Make all of your monthly payments on time – One of the most significant factors that go into calculating your credit score is your payment history. A history of on-time payments will help boost your credit score. If you miss payments, this can be reported to credit reporting agencies and damage your credit score.
Pay more than the minimum payment – By only making the minimum payment each month, you make it easier for yourself to accumulate more and more debt. Not paying your balance in full also increases your utilization ratio, which impacts your score negatively the higher your utilization becomes. Focus on paying off as much of the balance as possible each month.
Keep credit card balances low – Again, carrying large balances negatively impacts your credit score, so it is important to consistently keep your balances low if you can. If you have large outstanding credit card balances on your accounts compared to your available credit, lenders are also more reluctant to give you a new line of credit because they may view you as financially over-extended.
Keeping your credit cards open while maintaining low balances helps your credit utilization and, by extension, your credit score.
Keep your credit cards open – Closing a credit card account can hurt your credit score because you no longer get the benefit of its credit limit. Keeping your credit cards open even if you are not using them much allows the cards to help out your credit utilization metrics, boosting your credit scores.
Only apply for credit when you need it – Each time you apply for a new loan or credit card, lenders check your credit report, which results in a hard inquiry being added to your credit report. Having too many hard inquiries within the past year can impact your score negatively. If lenders see a lot of inquiries in your credit history, they may be concerned that you are taking on too much new debt and might not be able to make all of your payments on time.
Why You Should Never Trust a CPN to Boost a Credit Score Range
If you’re looking to boost or reset your credit score and come across a company that offers Credit Privacy Numbers (CPN), it’s best to stay away. A CPN is a nine-digit fake or stolen Social Security number that credit repair companies sell to people who want to repair their credit scores.
These companies instruct you to use the CPN in place of your Social Security Number when applying for credit. CPNs are generated randomly or stolen Social Security numbers, mostly from children, inmates, and senior citizens. Using a CPN is illegal, and when caught, you can face a hefty fine or even jail time.
Using a CPN instead of a stolen Social Security number, you may be committing an identity theft crime. Depending on your state and the statute of limitations, you could be jailed for a maximum of 15 years and face thousands in fines. Using a CPN to reset or boost your credit score is not worth the risk.
7 Fast Credit Building Strategies to Influence Your Credit Score Range
Credit scores have become an essential part of today’s society. It’s no longer just used for loan applications. Employers and landlords may also ask to review your credit score or credit history. In some cases, you may not get access to housing, utilities, or insurance if you have a low credit score.
If your credit score isn’t your ideal number, or is below the average credit score, there are several things you can do to help increase it. Here are seven fast strategies to help improve your credit score range:
1. Develop Your Credit File
Creating a positive credit file is the first step in building credit. This can be done by opening a credit line that is reported to the major credit bureaus. If you make on-time monthly payments and keep your revolving utilization ratio below 30%, this demonstration of good credit behavior will increase your credit score and, in turn, boost your credit score range. Higher credit scores will open doors to better financing options and lower rates.
2. Check Your Credit Reports
When building your credit score range, it’s critical to check your credit reports to know where you stand.
As mandated by the Fair Credit Reporting Act (FCRA), you can get your credit report for free once a year from each of the three credit bureaus. Additionally, during the COVID pandemic, the credit bureaus have volunteered to provide free credit reports to everyone on a weekly basis. This
Review each credit report for inaccurate information and dispute errors as necessary.
3. Dispute Credit Report Errors
Your credit score can be significantly lowered if your credit report contains erroneous negative items. However, the credit bureaus can be contacted if any errors are found. Your dispute letter must be investigated and responded to by the credit bureau within 30 days. If you find the information to be inaccurate, you can request that it be removed or corrected on your credit report.
4. Pay Your Bills on Time
Payment history is the most critical factor in your credit score, accounting for 35% of your score. No credit-building strategy will be effective if you do not consistently pay your bills on time. Late payments can remain on your credit report for up to seven years.
If you do this successfully, having a long history of on-time bill payments will help you achieve excellent credit scores. To avoid accidental missing or late payments, you can set up reminder notifications and automatic bill payments with your lenders.
5. Increase Your Credit Limit
Paying off credit cards and other revolving accounts may help boost your credit score range, but having a high amount of available credit will add points to your score. Consider increasing the limit on your lines of credit to decrease your utilization ratio. An ideal time to do this is after building up a history of responsible credit usage or when you have started a better-paying job.
According to the Consumer Financial Protection Bureau, your payment history, credit mix, debt owed, and length of your credit history are some important credit factors a credit card issuer will look at when determining your credit limits.
6. Catch Up on Delinquencies and Past Due Accounts
If you have missed payments in the past, try to resolve them as soon as possible. Bringing your delinquent accounts current will help improve your credit score, and paying off collections may help your score depending on which credit scoring model is used.
Since most negative information like late payments remains on your credit report for seven years, it’s important to start repairing your credit history as soon as possible.
If you have trouble with credit card debt, consider talking to a credit counselor to create a debt management plan. They may be able to negotiate lower monthly payments and interest with your creditors and help you pay off old collection accounts faster. Some may even work to get these negative marks removed from your report.
7. Get a Secured Credit Card
If you are just starting out or have had credit problems in the past, applying for a secured card can help you improve your credit score. When you apply for a secured card, you make a security deposit that the issuer will use as collateral if you are unable to pay.
Monthly payments on a secured credit card will help build your credit score. You should look for secured cards that report to all three major credit bureaus in order to take advantage of the credit-building benefits of credit cards.
The Dollar Differences in Credit Score Ranges
The difference between good credit and bad credit can add up to thousands of dollars of interest over your lifetime.
The higher your credit score range, the less risk you pose to lenders and the more likely you are to be approved for a loan with a lower interest rate.
For this reason, having a good credit score can save you thousands of dollars in interest costs.
However, those with low credit scores will have trouble getting approved for a loan, and those who do may be required to pay a higher interest rate to offset the increased risk of lending. Therefore, having a low credit score means you pay more for financing big-ticket items like a car or a home.
Why You Should Share What You Learned About a Credit Score’s Range
Sharing your knowledge about credit score ranges will help people understand the importance of maintaining a good credit score. To get financing for big-ticket items or a dream home, your credit score must reflect your financial responsibility. In the long run, consumers will save money and have easier access to credit when they have a history of good credit habits.
For lenders to feel confident that you are financially responsible, you should maintain a good credit mix of accounts including a checking account, savings account, and an investment portfolio.
Follow the credit tips above, such as maintaining a low credit utilization rate, making on-time payments, and not opening too many accounts at one time so that you can maintain a good credit score.
Conclusions on Credit Score Ranges
It’s important to understand credit score ranges and realize that they are a reflection of your creditworthiness.
Positive credit habits can open doors to financial opportunities that you would not be able to access otherwise, so start building up your credit history and credit scores now. Finally, make sure to keep up your good credit habits consistently to set yourself up for financial success in the future.
FICO 10 and FICO 10 T are new credit scoring models developed by FICO that have the potential to change the credit industry in a major way.
Credit expert John Ulzheimer, who worked for FICO for seven years and has almost 30 total years of experience in the industry, explained what FICO 10 and FICO 10 T are and what they mean for you as a consumer in an episode of Credit Countdown.
Disclaimer: The views and opinions expressed in this article are strictly those of John Ulzheimer and do not necessarily reflect the official stance or position of Tradeline Supply Company, LLC. Tradeline Supply Company, LLC does not sell tradelines to increase credit scores and does not guarantee any score improvements. Tradelines can in some cases cause credit scores to go down.
What Are FICO 10 and FICO 10 T?
The FICO 10 and FICO 10 T credit scoring models are part of the latest generation of credit scores in FICO’s lineup, which also includes FICO score generations 2, 3, 4, 5, 8, and 9. Currently, the most widely used base model is FICO 8. With every new FICO score, FICO tries to improve upon the power of their scores to predict consumer defaults, which is the overarching goal of credit scores generally.
The tenth generation of FICO credit scores is technically called the FICO 10 Suite, as it contains multiple different versions of FICO 10, although in common language this entire group is often simplified as just “FICO 10.”
FICO 10 was announced in early 2020, and it has received much media attention due to the changes that distinguish it from its earlier counterparts.
Why Are Consumers Worried About FICO 10?
Media coverage of the new suite of credit scores tends to focus on the claim that some consumers may see their credit scores go down with FICO 10.
However, John Ulzheimer says that this creates “controversy where controversy doesn’t exist.”
Why? Here are two reasons.
1. The FICO 10 Suite is a normal redevelopment of the FICO credit scoring system.
As we discussed above, FICO regularly redevelops their credit scoring models in order to make them more and more predictive of credit risk.
This is just like what other companies do with their products. Think of Apple and the iPhone: there isn’t just one iPhone anymore. They introduce newer generations of the iPhone, and people want to upgrade to the new and improved models that work better.
This does not mean that the previous versions were “bad,” just that there is a new version that may be better.
2. Your credit scores will be different every time FICO redevelops its credit scoring system.
With every change that is made to the credit scoring system, as an inevitable consequence, your credit score will change. That’s not necessarily a bad thing. Your credit score could go up, or it could go down, or it could remain similar to where it was.
Regardless of any changes made, the fact is that if you have a good credit score with one scoring model, you will likely still have a good credit score with a different model. The same goes for bad credit scores. Although different credit score versions have different ways of going about it, they all share the ultimate goal of predicting a consumer’s credit risk, and this will be reflected in your scores regardless of which particular credit scoring model is used.
There are dozens of different credit scoring models, and your credit score is going to be different with each model.
How Will FICO 10 Affect Your Credit Score?
In terms of how FICO 10 could affect your score, John says that newer credit scoring models such as FICO 10 do a better job of separating high-risk and low-risk consumers than older models. In other words, if you have good credit, your score is likely going to be higher with FICO 10. If you have bad credit, your credit score is likely going to be lower with FICO 10.
According to John, this is normal and it is what you would expect to see with any new credit scoring system.
What About FICO 10 T (FICO 10 Trended)?
The “T” in FICO 10 T stands for trended data.
FICO 10 T is unique among FICO’s roster of credit scores because it is the only tri-bureau FICO score on the market with trended data. (FICO competitor VantageScore also has a credit score that uses trended data, VantageScore 4.0.)
What Is Trended Data and Why Is It Unique?
When you check your credit report, you may see that some of your accounts show a history of your balances, your payments due, and how much your payments actually were each month for the past 24 months.
Being able to see this information over time makes it easy to understand the trends in your usage of the account.
Here are some examples of the types of insights trended data can provide:
If you are running up large balances over time. If you are keeping your balances relatively low over time. If you have been making your minimum payments over time. If you have been paying in full over time. What percentage of your balance you have been paying over time.
Trended data allows credit scores to consider trends in how you have managed your accounts over the past 24 months.
FICO 10 T can now consider this data as part of calculating your credit score.
The information trended data provides is very valuable because it adds another level of data that helps to predict the likelihood that a consumer will default.
For example, a consumer who has a perfect payment history and pays in full every month or keeps a relatively low balance is probably going to score better with FICO 10 than a consumer who maxes out their credit cards or keeps a relatively high balance over time, even if they pay off their credit cards every month.
The research done on trended data demonstrates that transactors, those who charge balances and then pay in full, carry less risk than revolvers, who roll over a portion of the balance from month to month rather than paying it off in full each month.
Consumers who carry a balance over time instead of paying their balances off in full every month will be penalized by FICO 10 T.
To summarize, trended data is what makes FICO 10 T different from the base version of FICO 10. FICO 10 still works like other traditional credit scoring models in that it only looks at a “snapshot” of your credit report at a given time.
Should You Be Worried About the FICO 10 Suite of Credit Scores?
You don’t need to stress out about FICO 10, especially if you have good credit, as you will still have a good credit score under FICO 10.
The same practices that are important in other credit scoring systems still apply to FICO 10 and will still reward you with a good score:
Always make your payments on time. Pay off your credit cards in full every month. Keep your balances low relative to your credit limits (maintain a low revolving utilization ratio). Limit the number of hard inquiries that hit your credit report by only applying for credit when you actually need it.
We hope this article helped you understand the new FICO 10 and FICO 10 T credit scores. Check out the video below, and browse our Knowledge Center and subscribe to our YouTube channel for more content like this!
We’ve written before about the problem of credit invisibility, which is when a consumer does not have a credit score. Millions of consumers are credit invisible in the United States, which represents a serious obstacle in the path to financial success in a society where credit is interwoven with so many aspects of our lives. You yourself may even be credit invisible and looking for a way to become credit visible by gaining credit history.
In order to be able to generate a credit score, your credit report has to meet certain requirements. These requirements are slightly different depending on whether the credit scoring model being used is a FICO score or a VantageScore.
FICO Score Minimum Credit Scoring Criteria
You must have at least one undisputed tradeline.
A tradeline is an account on your credit report. This may include credit cards, lines of credit, installment loans, etc. (Other items on your credit report that are not accounts and therefore are not considered tradelines include collections, judgments, tax liens, bankruptcies, and inquiries.)
In order to be included by credit scoring models, the tradeline cannot be disputed.
The undisputed tradeline must be at least six months old.
At least six months of credit history are needed in order to accurately predict your likelihood of defaulting in the future, which is what credit scores are designed to do. Trying to come up with a credit score using fewer data points might cause the score to be less predictive of your actual credit risk, which could create problems for lenders.
You must have recent activity on your credit report (within the past six months).
To meet this requirement, you must have at least one undisputed tradeline that has been updated within the past six months. Don’t worry, this can be the same tradeline that qualifies you for the prior two criteria as long as it has reported activity within the past six months, or it can be a different account.
You cannot be listed as “deceased” on your credit report.
Credit scores cannot be created for individuals who are deceased (or appear to be deceased due to an error).
If your credit profile satisfies these criteria, then you will be able to qualify for any FICO score regardless of which generation it may be.
VantageScore Minimum Credit Scoring Criteria
Compared to FICO scores, the VantageScore credit scoring models have less stringent requirements on who can qualify for a credit score.
You cannot be listed as “deceased” on your credit report.
Like FICO scores, VantageScores also do not calculate credit scores for deceased consumers.
You should have at least one or two months of credit history with any credit bureau.
According to MoneyCrashers.com, “the VantageScore model typically produces scores for consumers with one to two months of credit history, regardless of which bureau reports that activity.” The account or accounts do not need to have six months of age in order to be scored.
The company claims that the VantageScore 4.0 and 3.0 models can provide credit scores to 40 million consumers who cannot be scored using other types of credit scoring models since it is easier for consumers with limited information in their credit files to meet the minimum scoring criteria.
What the Lender Sees When You Do Not Have a Credit Score
If a lender tries to pull your credit score and you do not have one for any of the above reasons, they will instead receive what is known as a “reject code” or a “failure code.”
This reject code indicates to the lender that you have failed to meet the minimum credit scoring criteria and which criteria you did not satisfy.
Watch the video on this topic featuring seasoned credit professional John Ulzheimer below, or go to our YouTube channel to subscribe and see more credit-related videos!
We’ve written before about the problem of credit invisibility, which is when a consumer does not have a credit score. Millions of consumers are credit invisible in the United States, which represents a serious obstacle in the path to financial success in a society where credit is interwoven with so many aspects of our lives. You yourself may even be credit invisible and looking for a way to become credit visible by gaining credit history.
In order to be able to generate a credit score, your credit report has to meet certain requirements. These requirements are slightly different depending on whether the credit scoring model being used is a FICO score or a VantageScore.
FICO Score Minimum Credit Scoring Criteria
You must have at least one undisputed tradeline.
A tradeline is an account on your credit report. This may include credit cards, lines of credit, installment loans, etc. (Other items on your credit report that are not accounts and therefore are not considered tradelines include collections, judgments, tax liens, bankruptcies, and inquiries.)
In order to be included by credit scoring models, the tradeline cannot be disputed.
The undisputed tradeline must be at least six months old.
At least six months of credit history are needed in order to accurately predict your likelihood of defaulting in the future, which is what credit scores are designed to do. Trying to come up with a credit score using fewer data points might cause the score to be less predictive of your actual credit risk, which could create problems for lenders.
You must have recent activity on your credit report (within the past six months).
To meet this requirement, you must have at least one undisputed tradeline that has been updated within the past six months. Don’t worry, this can be the same tradeline that qualifies you for the prior two criteria as long as it has reported activity within the past six months, or it can be a different account.
You cannot be listed as “deceased” on your credit report.
Credit scores cannot be created for individuals who are deceased (or appear to be deceased due to an error).
If your credit profile satisfies these criteria, then you will be able to qualify for any FICO score regardless of which generation it may be.
VantageScore Minimum Credit Scoring Criteria
Compared to FICO scores, the VantageScore credit scoring models have less stringent requirements on who can qualify for a credit score.
You cannot be listed as “deceased” on your credit report.
Like FICO scores, VantageScores also do not calculate credit scores for deceased consumers.
You should have at least one or two months of credit history with any credit bureau.
According to MoneyCrashers.com, “the VantageScore model typically produces scores for consumers with one to two months of credit history, regardless of which bureau reports that activity.” The account or accounts do not need to have six months of age in order to be scored.
The company claims that the VantageScore 4.0 and 3.0 models can provide credit scores to 40 million consumers who cannot be scored using other types of credit scoring models since it is easier for consumers with limited information in their credit files to meet the minimum scoring criteria.
What the Lender Sees When You Do Not Have a Credit Score
If a lender tries to pull your credit score and you do not have one for any of the above reasons, they will instead receive what is known as a “reject code” or a “failure code.”
This reject code indicates to the lender that you have failed to meet the minimum credit scoring criteria and which criteria you did not satisfy.
Watch the video on this topic featuring seasoned credit professional John Ulzheimer below, or go to our YouTube channel to subscribe and see more credit-related videos!
The vast majority of lenders use your FICO credit score to evaluate your credit risk as a consumer when they are deciding whether or not to extend credit to you. And yet, historically, it has been costly for consumers to access their own FICO scores.
Popular websites such as Credit Karma and Credit Sesame offer free credit scores, but the scores provided are usually VantageScores, not FICO credit scores.
Knowing your VantageScore is still valuable information, but it is not directly tied to your FICO Score, so it is less useful when it comes to preparing to apply for credit. While it is often true that a consumer’s FICO score is similar to their VantageScore, in some cases, they may be vastly different, especially depending on which credit scoring models are used and which credit bureaus are providing the credit report information.
If you need to check your FICO score, where can you do so without paying a fee to access it?
Here are some of the best places to get your FICO score for free.
Your Credit Card Issuer
Several major credit card issuers now offer consumers the ability to check their FICO scores for free.
Discover Bank
Discover offers a free way to check your FICO score with their Credit Scorecard program. Even consumers who do not have a relationship with Discover Bank can freely use this feature.
Experian provides the credit report data that is used to calculate your FICO score. Your credit score updates once every 30 days and Discover notifies you when it is time to check your new FICO score.
In addition, Discover’s FICO Credit Scorecard keeps track of your credit score history so you can see how it changes from month to month.
The Credit Scorecard also provides a summary of what is going on with each of the five credit score factors that are influencing your FICO score: your payment history, credit utilization, length of credit history, mix of credit, and new credit (e.g. inquiries). You can find educational information about credit scores on the website as well.
To access your FICO score with Discover’s FICO Credit Scorecard, either visit their website or use the bank’s mobile app.
Bank of America
Bank of America is another widely used bank that offers free FICO scores to consumers. However, to enroll in this program, you must be a Bank of America credit card customer.
Much like Discover’s offering that we described above, Bank of America’s FICO Score Program provides customers not only with their FICO scores but also information on the major factors that influence your credit score, your month-to-month credit score history, and education about how to achieve and maintain good credit.
On top of this, Bank of America also compares your credit score to the national average.
Bank of America customers can view their FICO score for free on the company’s website or mobile app.
Citibank
Consumers who have Citibank branded credit cards can obtain their FICO score for free from Citi.
Citi states on their website, “We think it’s important to provide our cardmembers with free access to information that will help them understand and stay on top of their credit status. That’s why we’re providing you with your FICO® Score and information to help you understand it.”
Your FICO score from Citibank is determined using information from your Equifax credit report and the FICO Bankcard Score 8 credit scoring model. Unlike the standard version of FICO 8 that you may be used to seeing, which ranges from 300 to 850, the bank card model used by Citi ranges from 250 to 900. It is updated once a month.
You can find more information on Citi’s free FICO score program on their website.
American Express
Recently, American Express started providing access to free FICO scores to consumers who have American Express credit cards.
The bank uses the standard version of FICO 8, so the credit score range spans from 300 to 850. Experian provides the credit report data used to calculate your score.
As with the other free FICO score programs, you also get to see how your FICO score changes over time and you receive a summary of the factors affecting your credit score.
American Express credit cardholders can see their FICO scores in their online account or on their monthly statement.
Those who do not have credit cards with American Express can get their TransUnion VantageScore for free through the company’s MyCredit Guide program, but this does not include FICO scores.
Barclays
FICO scores from TransUnion are available to all Barclays credit card customers through the bank’s online banking system.
Once you have had your Barclays card for three months, you can see a chart of your FICO score history over the time you have had an account open with Barclays, according to SmartAsset.
Plus, Barclays will send you alerts via email if your credit score changes, including an explanation of why your score has changed.
Wells Fargo
Wells Fargo account holders who use their online banking platform can view their FICO credit score within their online account.
Additional features include your credit score history, information on your credit score factors, and personalized credit tips from Wells Fargo.
According to the bank, they offer your FICO score for free in order to “support your awareness and understanding of FICO® Credit Scores and how they may influence the credit that’s available to you.”
The FICO score you get through Wells Fargo is calculated using Experian credit report data and is updated once a month.
Experian
Experian is the only major credit bureau that offers consumers their FICO 8 scores for free along with their Experian credit reports.
In addition, Experian offers an alternative credit data program called Experian Boost, which can add positive payment history from certain bills to your credit report, such as utilities and Netflix.
Sign up on Experian’s website to start using these free services.
Your Local Bank or Credit Union
Not all banks and credit unions offer customers the ability to check their FICO scores for free, but it is worth asking if you do not have access to the previous options. If your local bank or credit union does not offer free FICO scores, they may be able to help direct you toward somewhere that does.
Will Checking Your FICO Score Hurt Your Credit Score?
Although this is a common concern, checking your own credit score should never hurt your credit.
This credit myth likely arises from the fact that hard inquiries on your credit report can have a small negative effect on your score.
However, hard credit inquiries only happen when you are actively seeking credit and a lender has to pull your credit report to decide whether or not to loan you money.
All other credit checks, including those you conduct yourself for educational purposes, are considered to be soft inquiries, which do not affect your score at all.
Final Thoughts on How to Get Your FICO Score for Free
If you want to be able to see your FICO score for free, there are many options available to you, especially if you have credit card accounts with major banks such as those listed above.
FICO also has a program called FICO Score Open Access that aims to enhance consumer access to FICO scores and educate consumers about the topic. FICO has a list of additional lenders and credit and financial counseling organizations that participate in this program, which you can browse in case you do not have any accounts with the banks mentioned here.
Keep in mind that lenders use many different versions of FICO scores, including older generations and versions that are specific to certain industries. That means that when you check your FICO score for free, it is not guaranteed to be the same exact FICO score that a lender will use when you apply for credit.
When you check your FICO score using one or more of the methods in this article, take note of which credit bureau is supplying the information as well as which FICO score version is being used to calculate the result so that there is no confusion if you see a different FICO score somewhere else.
Finally, remember that you can also get your VantageScore for free in many places as well. While it’s not the same as your FICO score, it can still provide educational value as it uses the same general principles to calculate your score.
Let us know if this article helped you find a way to get your FICO score for free by commenting below!
Your credit score is a seemingly simple three-digit number, but it can have a major impact on your finances. Without a high score, you may not be able to pursue some of your major financial goals. Or even if you can, those goals can actually turn into major challenges if you’re stuck with high interest rates because you had a low score. If you are preparing to improve your credit, you need to know the general ranges for scores so that you can set a specific goal for yourself. There are various tiers of credit scores, and being in a higher tier will generally bring the reward of better terms.
First, What’s the Average?
We’re going to talk about credit score categories in a moment, such as “poor,” “fair,” and “good.” But first let’s take a look at the average credit score. One initial point of clarification—while there are two major credit scoring models—FICO and VantageScore—we will focus primarily on the FICO score in this article, though we will make brief mention of the VantageScore as well. There are actually multiple FICO scoring models, and lenders use a variety of them, but the information here specifically relates to FICO® Score 8.
FICO most recently reported that the average credit score is 706. Credit scores nationwide can fluctuate significantly depending on the state of the economy. Back in 2009, the average was 686. COVID-19 and other economic factors may have a negative impact on the national average, but only time will tell. The average can be a useful baseline for comparing your own score. But, don’t let the average discourage you if your score is lower, because there are many ways to increase your score.
Source: FICO.com
The Breakdown
Using the FICO 8 scoring model, the credit bureaus agree (see Experian’s post here and Equifax’s here) to the following breakdown for score ranges. Again, remember that your lender may use a different model which could result in a slightly different breakdown. But, this should give you a good general idea of what to aim for.
Poor
A poor credit score is a score between 300 and 579.
Fair
A fair credit score is a score between 580 and 669.
Good
A good credit score is a score between 670 and 739.
Very Good
A very good credit score is a score between 740 and 799.
Excellent
An excellent credit score is a score between 800 and 850.
If you are curious about the breakdown for VantageScore 3.0, it looks like this:
Interestingly, the VantageScore ranges are narrower on the low end of the spectrum (including both a “very poor” and “poor” range, and broader on the high end (including only a “good” and “excellent,” without a “very good” range).
Why the Ranges Matter
Now that you know the ranges, here are three important reasons that they matter.
Access to Credit and Other Services
If your score is too low you may not have access to credit or, at the very least, you will likely have obstacles to credit. A score in the “very poor” range may mean that any applications for credit are denied. Your best bet may be a secured credit card, which requires you to make a deposit. While this is not ideal, a secured card can be an important tool in rebuilding your credit.
Also, remember that getting credit is not the only concern. Access to other products and services often depends, in part, on your credit history. Being in the “very poor” range can limit your ability to rent an apartment, enter certain contracts, or even get a job.
Favorable Credit Terms
Even if you can get credit, you will want the credit terms to be as favorable as possible. Bad credit terms, like high interest rates, will make your debt more expensive. They will also limit your purchasing power, which can prevent you from buying the home or car you want. Every time your score improves from one category to the next (say from “fair” to “good”), that should be paired with lenders offering you more favorable terms.
Here is a look at estimated mortgage rates by credit score and a look at auto loan rates by credit score. Note: these tools use different ranges and terminology for scores (for instance, the auto loan chart has ranges from “deep subprime” to “super prime”), but the general point still applies.
Goal Setting
Knowing the general credit score ranges can help you plan your goals for the future. Make a plan to check your credit score frequently, but especially as you make major changes (paying off a debt, opening a new card or loan, or changing your credit limit). You will also need to check your credit report often, as that report is the basis for your score. Keeping a close eye on these will help ensure that you move your credit in the right direction.
Want a free credit report review? An NFCC-certified counselor can review your credit report with you, and help you make a game plan for improving your financial standing. Learn more about the free credit report review, or get started here.
Equality, fairness, and justice are all concepts that the United States promotes as some of its highest values.
In reality, the history of our country and society has not always lived up to those values. In fact, our history has proven to be so far from those ideals that we do not even need to mention how far off our society has been in our not so distant past.
Fast forward to now, and many people may believe that our country has worked out all those unfair and unequal practices. But the truth is that in our capitalist society, powerful private institutions provide the backbone of our economy, and the facts paint an interesting picture of how our financial systems really operate.
Do Credit Scores Actually Work?
For decades, lenders have been relying on automated underwriting tools that are largely or entirely based on the contents of one’s credit report. Do these tools succeed at their goal of accurately determining the creditworthiness of consumers?
What Do Credit Scores Do?
A credit score is a number that is supposed to symbolize the credit risk of a consumer. The scale usually ranges from 300 to 850, with lower scores indicating that you have a high risk of defaulting on a loan and higher scores indicating that you have a low risk of defaulting. Generally, credit scores that fall below 579 are considered bad credit, while scores that exceed 670 are considered good credit, and 850 is a perfect credit score.
Each type of credit score, such as a FICO Score or a VantageScore, has a different mathematical formula that uses the data in your credit report to produce your score, which represents the statistical likelihood of you defaulting in the future. The specifics of the credit scoring algorithms are trade secrets, so information about how exactly they work is not available to the public.
Credit Scoring Models Are Flawed
It is estimated that one-fifth of consumers have at least one error on their credit report that has the potential to make them look riskier than they are, which could result in higher interest rates, less favorable loan terms, or being denied credit. In other words, millions of people are negatively affected by inaccurate information on their credit reports.
Furthermore, it is well-known that in our credit system, consumers are rewarded for having debt and penalized for paying in cash, because taking on debt is one of the primary ways of establishing a payment history. You would think that being burdened with more debt would make you a higher credit risk, yet credit scoring models are designed to reward this behavior.
For example, many consumers are unpleasantly surprised to find out that sometimes paying off a loan can actually hurt your credit score. This is counterintuitive because it would seem that your credit risk has decreased now that you no longer have to make payments that loan, and therefore it would make sense for your credit score to go up as a result.
However, that is not how credit scores work. Here’s what really happens in this scenario: the action of paying off the loan would close the account and remove it from your mix of credit, which could have a negative effect on your score.
Clark Abrahams, Chief Financial Architect of SAS Institute, said it well in his testimony before the House Financial Services Committee, asking, “Are we to tell consumers that being responsible in their financial affairs means that they need to modify their behavior so as to maximize their credit score?”
The goal of a credit score is to indicate who is creditworthy and who is not, which should depend on an individual’s ability and willingness to repay an obligation. Yet this quality is not always reflected in one’s credit score. Instead, credit scores are based exclusively on what is and is not in one’s credit file, which often doesn’t tell the whole story.
Is the Credit Scoring System Fair and Equitable?
Just a few years ago, it was revealed that two of the three major credit-reporting agencies that control credit scores—Equifax and Transunion—had been deceiving and taking advantage of consumers.
If you’re familiar with the credit system, it’s not exactly shocking that the credit bureaus have been abusing their power. This is just one example of the dysfunction that runs deep in the credit system and causes widespread harm to consumers.
The Equal Credit Opportunity Act of 1974 was enacted in an effort to prevent discrimination in lending. In the 1970’s, people started to pay attention to credit discrimination against consumers based on age, race, gender, and other factors. In 1972, the National Commission on Consumer Finance revealed that there was widespread discrimination against women in the credit industry. A congressional report identified 13 discriminatory practices used specifically against women.
These discoveries led to the Equal Credit Opportunity Act (ECOA), which prohibits lenders from discriminating against any applicant on the basis of age, gender, ethnicity, nationality, or marital status. Regulation B of ECOA prohibits creditors from requesting information about certain characteristics to prevent lenders from making decisions based on prejudicial assumptions.
Officially, credit discrimination is prohibited. But it is not clear whether ECOA has succeeded in its goal, and many questions remain as to whether there is still inequality in the credit industry.
Is ECOA enforced effectively, or does discrimination still happen? Does the credit scoring system affect population groups differently? Do the factors used in calculating credit scores affect certain individuals grouped by race, gender, age, or other protected characteristics?
Unfortunately, the language of ECOA makes it virtually impossible for those who believe they have been discriminated against to win a lawsuit against a creditor, and the governing federal agencies have not picked up the slack in enforcing ECOA. There is no shortage of data showing that there is disparate treatment of certain groups when it comes to credit scoring.
This is because the credit scoring system not only reflects but perpetuates the economic inequalities in this country.
Who Are Credit Invisibles?
According to the Consumer Financial Protection Bureau (CFPB), about one-fifth of adults in the United States are “credit invisible,” meaning they are unscoreable by traditional credit scoring methods and traditional credit data. The lack of a conventional credit record prevents these consumers from obtaining the financial products and services they need to be successful, since they are seen by lenders as too high of a credit risk.
A study by the Policy and Economic Research Council (PERC) on credit invisibility in Silicon Valley showed that unscoreability is a big problem in low-income areas. However, low-income does not necessarily equate to financially irresponsible.
We can see evidence of this in a study by PERC and the Brookings Institution Urban Markets Initiative, which shows that when alternative data (such as rent and utility payment history) are used in credit ratings, those lacking a traditional credit history have similar risk profiles as those in the credit mainstream. This suggests that most credit invisible consumers do not represent a high risk to lenders.
On the other hand, some of these consumers do have relatively good incomes, but are credit invisible for various reasons, such as increased use of alternative financial technology services instead of traditional financial institutions, a decision to be voluntarily credit-inactive and debt-free, or a cash-based lifestyle due to lack of access to banking services (as in some immigrant populations).
Credit Scores and Income
Low-income consumers are about 8 times more likely than high-income consumers to lack credit records that are scoreable by widely used models. In consumers that do have credit scores, individuals who reside in low-income census tracts have lower credit scores than other income groups, according to the CFPB.
They also found that people in lower-income neighborhoods are less than half as likely as those in upper-income neighborhoods to gain a credit record by relying on the good credit of others (such as through joint accounts or authorized user accounts), and are 240 percent more likely to become credit visible due to negative records.
Lower-income consumers are less likely to have one or more AU accounts, and those that do acquire shorter credit histories from the accounts than those in higher-income areas.
Even after controlling for credit scores, consumers in low-income areas face higher denial rates than other groups.
How Credit Scoring Adversely Affects Certain Races
In a report to Congress on credit scoring and its effects on the availability and affordability of credit, the Federal Reserve Board (FRB) raised concerns that factors in credit-scoring models could adversely affect minorities.
The study determined that on average, blacks and Hispanics have lower credit scores than non-Hispanic whites and Asians, and a gap remained even when controlling for differences in personal demographic characteristics, location, and income.
In addition, for given credit scores, outcomes such as loan performance, credit availability, and credit affordability differed between these groups.
For example, it seems that black individuals pay higher interest rates on auto and installment loans than do non-Hispanic whites with the same credit score. In addition, black and Hispanic consumers experience higher denial rates than other groups with the same score.
Credit Scoring Discriminates by Age
Younger individuals tend to have lower credit scores, which makes sense considering that one of the main factors in credit scoring is the length of credit history.
Unfortunately, this means that young people who may be creditworthy are disadvantaged just by virtue of not being old enough to have a very long credit history. Younger consumers also experience relatively high denial rates.
Other Groups Marginalized by Credit Rating
The unequal effects of credit scoring are not limited to the above groups. It can affect consumers in surprising ways. For example, recent immigrants have lower credit scores than their performance would predict.
Credit invisibility is more prevalent in areas with less digital access to traditional financial service providers, such as in rural areas.
And since no federal law protects LGBTQ people from discrimination, they can still be denied credit with no option for recourse.
Why the Credit System Is Inherently Discriminatory
In the FRB’s report to Congress, they listed the “five C’s,” which are factors that seem to influence the variations in credit performance with race, age, gender, national origin, etc. The five C’s are:
Capacity: income available to pay off debts Collateral: the value of assets backing a loan Capital: the value of assets that do not explicitly back a loan but may be available to repay it Conditions: events that can disrupt income generation or create unexpected expenses that affect a borrower’s ability to make loan payments Character: the financial skills, experience, and/or willingness of a borrower that pertain to their ability to manage financial obligations
The way credit scores are determined privileges those who already have wealth, high incomes, education, and a support system of people who can help them out in a financial crisis.
In contrast, historical discrimination against minorities in the United States continues to affect each of the five C’s in ways that have serious and persistent consequences on credit scores.
In relying on and reflecting past inequality, credit scores also perpetuate that inequality.
According to the National Consumer Law Center, communities of color have less income and far less wealth than white Americans, thanks to centuries of discrimination and exclusion. Redlining, segregation in education, implicit bias in employment, and mass incarceration have prevented communities of color from attaining higher incomes and accumulating wealth.
The racial wealth gap makes it exponentially more difficult to recover from emergencies or financial setbacks. These inequalities take a toll on each of the 5 C’s, which in turn contributes to the higher proportion of credit invisibility and poor credit in minority communities.
Since credit scores are used in decisions that affect housing, insurance, employment, loans and more, poor credit scores mean consumers of color are disproportionately denied credit, affordable housing, jobs and other basic necessities. Expensive loan terms deplete capital and make loans much more difficult to repay, which continues the cycle of bad credit.
The system further burdens those who are already financially strained and provides very few opportunities to improve their situation.
Can We Fix Credit Scoring?
The credit scoring industry clearly has a multitude of problems. It’s no surprise that an inherently discriminatory system meant to serve for-profit companies has not produced equitable results.
Some believe that private companies shouldn’t even be the parties responsible for calculating credit scores. These for-profit corporations harvest our information, use closely-guarded proprietary algorithms to calculate credit scores, and sell this information to other companies in the financial sector.
Their clients are lenders, not consumers, so they do not have an incentive to fairly and accurately represent consumers. Perhaps a system in which this task falls to public institutions would be more accountable to consumers.
Pending currently is the Credit Access and Inclusion Act of 2017, a bill that would amend the Fair Credit Reporting Act to allow the reporting of rent, utilities, and telecommunication payment information to consumer reporting agencies. Even FICO has joined the discourse about financial inclusion, developing credit scores that include alternative data sources to allow millions of previously unscorable consumers a path to credit.
However, most lenders still use FICO 8, which is over 10 years old, so it would likely take a long time before scores that draw on more diverse data are widely deployed.
In addition, some civil rights and consumer advocacy groups argue that the addition of alternative data would actually “reduce consumers’ control over their own data by preempting state and federal privacy protections [and] damage the credit scores of millions of consumers with a disproportionate impact on African Americans.”
Perhaps what we really need is a broader conversation about how we judge creditworthiness and how we can create new tools that account for discrimination to create a more equal and just playing field. We need to question the assumption that past behavior is a true reflection of someone’s creditworthiness.
While the industry may be (very) slowly changing for the better, unfortunately, the faulty credit scoring system we have now will continue to negatively impact the lives of millions of people for years to come. That’s why we are driven to help provide solutions and opportunities to disadvantaged consumers.
How Do Tradelines Fit Into Equal Credit Opportunity?
Having good credit often comes down to having a good start in life and knowing how to play the credit game. Some people are born with access to wealth and education while others are not. People who don’t have the resources to start building good credit early on often get stuck in the downward spiral of a broken system that leaves them little room to improve their financial situation.
When people make mistakes, as we all do sometimes, these mistakes have a much greater impact on those who lack good credit than on those who have been playing the credit game for years.
The gap between classes in society is getting larger, as opposed to our country’s ideal of promoting equality. In reality, the wealthy are the ones who receive the most help and opportunity.
Our society has become a credit-based society in which credit scores affect almost every aspect of our lives, yet there are clear “winners” and “losers” in our credit scoring system. Statistically, there are clear indications that these differences are not spread out equally across our country.
Good credit is something that many privileged Americans start out with in early adulthood because of the family they were born into. This is no secret among the wealthy.
On the other end of the spectrum, many lower-income families do not have family members with good credit that they can ask to help them build credit by adding them as an authorized user on a credit card. This option simply does not exist to many, while the banks encourage it for others.
To us, it does not seem fair that some people have this option but others do not. Tradeline Supply Company, LLC seeks to bridge this gap by helping to provide a chance at equal credit opportunity for all.
What do you think about the credit system and equal credit opportunity? If you liked this article, please share it or leave us a comment below!
FICO, the company behind the creation of the original FICO credit score and its many subsequent iterations, has announced the latest model in their line of credit scoring algorithms: the FICO Score 10 and the FICO Score 10 T. The “T” in the latter scoring model stands for “trended,” which reflects the incorporation of trended data over time into the algorithm.
Thanks to not only the trended data but also a few other major changes, the new scoring models are claimed to be superior to all previous FICO scores.
Although the majority of consumers are not likely to see a dramatic change in their credit scores, some groups of consumers may experience more extreme shifts. Ultimately, the new FICO scores are predicted to widen the gap between consumers with good credit versus those with bad credit.
However, none of that matters until FICO 10 and 10 T actually start being used, which could still be a few years away.
Keep reading to get all the facts on FICO 10, including what makes it different from previous FICO score versions, the impact it will have on credit scores, and when we will start to see lenders adopting it. Most importantly, we’ll tell you how to get a good credit score with FICO 10.
Why Did FICO Come Out With a New Credit Scoring Model?
The whole point of a credit score is to communicate a consumer’s level of credit risk to lenders so that lenders can make less risky decisions when granting credit. Lenders want to avoid extending credit to borrowers who are likely to default on a loan because defaults represent losses for the company.
So, the more accurate a credit scoring model is at predicting consumer credit risk, the more useful it is to lenders. With a predictive credit scoring model, lenders can make more informed lending decisions, which helps their bottom line.
For this reason, the goal of each new credit score is to make it better than the last version at predicting credit risk, and that is exactly what FICO 10 is designed to do.
Consumer Debt Is on the Rise—But So Are Credit Scores
According to The Balance, consumer debt has increased to record levels, and yet the average credit score in the United States has also increased to 706 as of September 2019. This can be attributed partly to economic conditions over time, but there is another major factor that has the banks worried.
The national average FICO score has been on the rise for the past decade and it surpassed the 700 mark in 2018.
It has now been 12 years since the Great Recession of 2008, which means almost all of the delinquencies and derogatory marks on consumers’ credit reports from that period of financial hardship have been removed from their records. Therefore, creditors can no longer see how consumers handled the recession and whether they were able to pay all of their bills when the economy went south.
Couple this with the fear of another possible economic recession on the horizon, and you can understand why lenders have started to feel concerned that delinquencies and defaults may soon begin to rise to a level that is not reflected in consumers’ high credit scores.
Because of these economic factors, the credit scoring system needed an overhaul that would take into account the changing economic climate as well as changing consumer behavior and allow for better predictions of credit risk and default rates.
FICO 10: More Accurate Predictions of Credit Risk
FICO predicts that FICO 10 will lower defaults on auto loans by 9% and defaults on mortgages by 17%.
Due to the changes made to the scoring model that we discussed above, especially the inclusion of trended data for the FICO score 10 T, FICO claims that the new scores perform better than all previous FICO scores by substantially lowering consumer default rates.
Here’s what else FICO has to say about their new products:
“By adopting the FICO® Score 10 Suite, a lender could reduce the number of defaults in their portfolio by as much as ten percent among newly originated bankcards and nine percent among newly originated auto loans, compared to using FICO® Score 9. The reduction in defaults is even higher for newly originated mortgage loans, at 17 percent compared to the version of the FICO Score used in that industry. These improvements in predictive power can help lenders safely avoid unexpected credit risk and better control default rates, while making more competitive credit offers to more consumers.”
How Is FICO 10 Different Than Previous FICO Scores?
Although FICO routinely updates their credit scoring algorithms every five years or so, this will be the first time that they are releasing two different versions of the same general scoring model: FICO 10 T, which uses trended data; and FICO 10, which does not use trended data.
Both FICO 10 and FICO 10 T will be drastically different than the previous FICO score, FICO 9. FICO 9 was designed to be very forgiving to consumers, which led many to believe that it produced credit scores that were higher than they should have been.
With FICO 9, for example, medical collections were given less weight than other types of collections, which was a benefit to consumers struggling with medical debt.
Furthermore, FICO 9 completely ignored paid collection accounts, meaning that if you had a collection on your credit report but then paid the balance, it would no longer affect your credit score. Many felt that this change contributed to FICO 9 overestimating the creditworthiness of consumers, which in turn led to the scoring model not being accepted by many industries.
In contrast, the FICO 10 scores represent a swing back in the opposite direction. It is designed to be less lenient toward consumers with risky credit behaviors in order to avoid understating consumers’ credit risk. In that sense, it is probably more similar to FICO 8 than to FICO 9. However, FICO 10 also rewards consumers who have successfully managed their credit.
To accomplish this, FICO made some significant changes in creating their latest set of credit scoring algorithms.
Trended Data
The new FICO 10 T score is the first FICO score to look at trended credit data.
The FICO 10 T score will incorporate trended data, which means that it will not just consider your credit profile as a “snapshot” in time, but rather, it will take into account your credit behavior over the previous 24 to 30 months and how your credit profile has changed in that time.
VantageScore 4.0, a competing credit scoring model, has been using trended data since it debuted in 2017. Now, FICO is following suit with their 10 T score.
Because of the more extensive temporal data set FICO 10 T has to draw from, it is even more predictive of a borrower’s credit risk than the basic FICO 10 score, which can only see a “snapshot” of your credit report at a given point in time.
For consumers, the trended data factor is especially significant for the credit utilization portion of your credit score. Of course, credit scores already looked at your payment history from the past seven to 10 years, but until now, they only looked at your credit utilization ratios at a given point in time.
This means that with most credit scoring models, even if you max out your credit cards one month and your credit score suffers as a result, as long as you pay down your cards again by the next month, your score can still bounce right back to where it was before you maxed out the card.
With FICO score 10 T, however, it won’t be so easy to recover from high balances, because a record of being maxed out could stick around for the next 24 to 30 months.
In addition, if your balances have been climbing higher over the last two years or if you have been seeking credit more aggressively, you could be penalized by FICO 10 T, because this kind of behavior indicates a higher risk of you defaulting in the future.
On the other hand, if you have been managing your credit well and your debt levels have been decreasing over the past two years, you will be rewarded for that behavior.
Personal loans from online lenders have exploded in popularity, but it’s best to avoid them if you want to get a high FICO 10 credit score.
Personal Loans Will Be Penalized
The vice president of scores and analytics at FICO, Joanne Gaskin, has said that the most significant change to the scoring algorithm is the way it treats personal loans.
Personal loans are growing faster than any other type of consumer debt, even credit cards. Consumers are turning to personal loans to consolidate credit card debt more frequently than in the past, and the proliferation of financial technology companies has made personal loans easier to qualify for and more accessible.
With older FICO models, personal loans are treated the same as any other installment loan. Since the balances of installment accounts don’t affect credit scores as much as the utilization ratios of your revolving accounts, with most scoring models, taking out a personal loan to consolidate credit card debt (essentially converting revolving debt into installment debt) would benefit a consumer’s credit score.
However, many consumers who take out personal loans to pay off revolving debt don’t change the spending habits that got them into debt in the first place. Consequently, after getting a personal loan and paying down their credit cards, they may run up their cards again and find themselves even deeper in debt.
According to FICO, the credit risk of such consumers is higher than you would think based on their credit scores using previous FICO models. To account for this, FICO 10 is treating personal loans as their own category of credit accounts and is potentially penalizing consumers for taking out personal loans.
With FICO 10 T, recent missed payments will matter even more than they already do with other FICO score versions.
Therefore, with FICO 10, the strategy of consolidating credit card debt with a personal loan might not help your credit score as much as you hope and might even hurt it. However, the negative impact of taking out a personal loan can be mitigated by steadily working to reduce your overall debt level.
On the other hand, if your overall debt load stays the same or continues to increase after you take out a personal loan, that could hurt your credit score because it shows lenders that you are getting deeper into debt and not managing your credit well.
Recent Missed Payments Will Be Penalized More Heavily
Payment history has always been the most important part of a FICO credit score, but it is even more important with FICO 10 T, the trended data score.
Using historical data, it can assign late and missed payments even more weight based on your behavior in the past 24 months. For example, if you’ve been getting progressively farther behind on payments over time, the negative impact on your credit score could be even greater than it would with a previous FICO score.
If you have delinquencies that are at least a year old, though, then those older negative marks on your credit report won’t hurt your score as much, according to MSN.
How Will the FICO 10 Scoring Model Affect Credit Scores?
Overall, it is predicted that the new FICO 10 scoring models will have a polarizing effect on consumers’ credit scores, which means that some consumers who have bad credit scores may see them drop even further, while those who have good credit scores because they are on the right track may be rewarded with even higher scores.
40 million consumers are likely to experience a credit score drop of 20 or more points with FICO 10 compared to previous models. This could push some consumers over the edge into a lower credit rating category.
FICO has estimated that approximately 100 million consumers will probably experience minor changes of less than 20 points to their scores. The company also estimates that about 40 million consumers will see their credit scores drop by 20 or more points, while another 40 million could see their scores increase by the same amount.
You are likely to see a credit score drop if you took out a personal loan to consolidate debt but then kept accruing more debt instead of paying it off, or if you have credit card debt that you are not paying down.
You are most likely to see a credit score increase if you have been penalized for having high balances from time to time, since the temporal data from FICO 10 T will help to average out the peaks in your utilization rate.
While a decrease of 20 points in your credit score isn’t catastrophic, it could be enough to make a difference in your chances of being approved for credit or the interest rates you could qualify for. This is especially true for those whose credit scores sit near the lower border of a credit score category.
For example, if someone with a credit score of 595 with FICO 8 is considered to have fair credit. If FICO 10 gave them a credit score that is 20 points lower, their credit score would be 575, which is considered bad credit. That could very well make or break your chances of getting approved for a loan or a credit card.
On the other hand, the inverse is true for those who stand to gain 20 points. If a 20 point increase pushes a consumer over the edge from fair credit to good credit, for example, this could certainly be beneficial when applying for credit.
It’s estimated that 80 million consumers will see a significant change in their credit scores with FICO 10, which may move them into different credit score ranges.
Less Severe Score Fluctuations
As you may recall from How to Choose a Tradeline, the more data there is contributing to an average, the more difficult it is to affect that average.
Since FICO 10 T looks at your credit utilization for an extended period of time instead of just the current month, it is likely that your credit score will not change as drastically from month to month based on your utilization ratios at the time.
In other words, your utilization data from the past 24 to 30 months will have a stabilizing effect on your score that will protect it from being heavily penalized if you occasionally have high balances. For example, if you spend extra on your credit cards in December to prepare for the holidays, your score that month won’t be hurt as much as it would without the trended data (as long as you pay it off quickly).
Greater Emphasis on Trends and Recent Data
FICO 10 T will especially reward consumers who have a trend of improving their credit over time.
The inclusion of trended data with FICO Score 10 T and extra emphasis on recent data means that your credit score is not based solely on what your accounts look like today, but instead, it will give more importance to whether your credit is getting better or getting worse.
Hypothetically, it’s possible that two consumers with the same amount of debt and derogatory items could have different credit scores based on the trend in their debt levels.
If one consumer has $10,000 of credit card debt, but they have been making progress on paying that down from a starting point of $20,000 of debt, then their credit score would be helped by FICO 10 T because their debt level is demonstrating a trend of improvement over time.
If the other consumer also has $10,000 of credit card debt, but they used to only have $1,000 of revolving debt, that trend shows that they are getting deeper into debt, and their FICO 10 score would be hurt by that pattern of increasing debt.
A Polarizing Effect on Credit Scores
One of the major effects of FICO 10 is that it is likely going to polarize the pool of consumers’ credit scores. In other words, those near the top of the credit score range will get even higher, while those with low credit scores will sink even lower along the scale.
According to CNBC, consumers with scores of lower than 600 will experience the largest reductions in their credit scores with FICO 10. Those with scores of 670 and above could possibly gain up to 20 points.
This creates a distribution of credit scores that is more concentrated at the two extremes, as opposed to most consumers’ credit scores being concentrated around the average.
Unfortunately, that means the negative effects of the new FICO scores will disproportionately impact consumers who are already struggling with debt. This will make it even harder for consumers to get out of debt and may force them to seek out costly, predatory loans, which only accelerates the downward spiral of debt.
This perpetuation of inequality in the credit scoring system is not new, but it seems that FICO 10 will only serve to increase credit inequality rather than improve it.
Ultimately, FICO’s clients are the banks, and their products are designed to give banks the upper hand, not consumers.
When Will the New FICO Score Be Rolled Out?
By widening the divide between consumers with good credit and those with bad credit, it seems that FICO 10 will exacerbate credit inequality.
According to FICO, the FICO Score 10 Suite of products will be available in the summer of 2020. The vice president of scores and predictive analytics at FICO, Dave Shellenberger, told The Balance that Equifax will be adopting the new score shortly thereafter.
As to when lenders will actually start to use the new credit scoring system, that is a different question.
Lenders Are Slow to Adapt to New Credit Scoring Systems
The financial industry adapts very slowly to systemic changes. As we discussed in “Do Tradelines Still Work in 2020?”, there are many, many different versions of FICO, and the majority of lenders are still using versions of the score that are years or even decades old.
Before FICO 10, the latest version had been FICO 9, which has largely gone unused by lenders.
FICO 8 is the credit scoring model that is currently being used by the three major credit bureaus and it is also the most widely used model among lenders today. FICO 8 debuted in 2009, which means it has now been around for over a decade.
There are certain industries that rely heavily on FICO score versions that are even older than FICO 8. In the mortgage industry, the most popular FICO scores are versions 2, 4, and 5, the earliest of which debuted in the early 1990s. Auto lenders may use FICO scores 2, 4, 5, or 8, while credit card issuers use models 2, 3, 4, 5, and 8.
Furthermore, many industries and even some large lenders have their own proprietary FICO scoring models which have been customized for that particular institution and the consumer base they serve.
Lenders have amassed huge troves of data based on a specific credit scoring model. Having reliable data is crucial to minimizing risk during the underwriting process. If lenders were to change to a new scoring model, all of the credit scoring information they have collected so far would no longer be applicable, since it was calculated using a different algorithm.
It is likely that the FICO 10 T score will take longer to implement than the basic FICO 10 score because FICO 10 T will require businesses to train employees to use a new set of reason codes.
They would essentially be starting from scratch, which would mean taking on more risk until they have tested the new model for long enough to understand how it works for their businesses. Because of this, lenders are often reluctant to upgrade to a newer scoring model and slow to implement it.
Therefore, we can make an educated guess that it will most likely take at least a few years for FICO 10 to gain traction with lenders on a large scale. According to Shellenberger of FICO, it may take “up to two years” before lenders start using the new model, although based on past examples, it seems likely that it could take a lot longer than that.
FICO 10 T Will Be More Challenging for Lenders to Adopt
According to FICO, the standard FICO 10 score uses the same “reason codes” as older FICO scores. Reason codes, also referred to as “adverse action codes,” are the codes that lenders must provide if they have rejected your application for credit based on information from your credit report. These codes usually consist of a number and a brief statement of something that is impacting your score in a negative way, such as revolving account balances that are too high compared to your revolving credit limit.
Because FICO 10 shares the same reason codes with previous versions of FICO scores, this means it will be compatible with lenders’ current systems, at least with regard to reason codes.
In contrast, FICO 10 T comes with a new set of reason codes, which means it will be a more extensive undertaking for banks to implement the new score and train employees on how to use it.
For this reason, it seems likely that the basic version FICO 10 may see widespread use among lenders before FICO 10 T does.
How to Get a Good FICO 10 Credit Score
Although some significant changes have been made to the FICO 10 credit scoring products, the overall principles of managing credit remain the same. Most importantly, make all of your payments on time, every time, and try to keep your credit utilization low.
However, there are a few specific points to keep in mind if you want to get a good credit score with FICO 10.
Think twice about taking out a personal loan
Since personal loans will be more heavily penalized with FICO 10 scores, you’ll want to avoid taking out a personal loan unless it’s absolutely necessary. Instead of relying on personal loans to support your spending, try to save up for large purchases in advance, and start funneling some cash from each paycheck into an emergency fund in case you run into financial hardship.
If you do end up needing to use a personal loan, try to pay it down as quickly as you can. In addition, don’t run up the balances on your revolving accounts again, because the FICO 10 T algorithm does not reward this behavior, and your credit score will reflect that.
Consider setting up automatic payments for all of your accounts so that you never accidentally miss a payment.
Never miss a payment
Avoiding late or missed payments is of the utmost importance with any credit score, but it is even more important with the new FICO scoring system. Late and missed payments may be assigned more weight based on your recent credit history, especially missed payments that occurred within the past two years.
To avoid missing any payments, set up all of your accounts to automatically deduct at least the minimum payment from your bank account before your due date each month. Also, it’s a good idea to get into the habit of checking your accounts regularly to make sure there haven’t been any errors or issues with processing your automatic payments.
If you do accidentally miss a payment, pay the bill as soon as you notice and consider asking your lender to waive the late fee. If you manage to catch up before 30 days have gone by, then you can avoid getting a derogatory item added to your credit report.
In the event that you find yourself with a 30-day late (or worse) on your credit report, then you will need to be extra vigilant about making payments on time for at least the next one to two years if you want your score to recover.
Pay off your credit cards in full every month
Paying off your credit cards in full is always a good idea in general because that way, you can avoid wasting money on interest fees. In addition, paying off your full balance each month prevents your credit utilization from increasing from month to month, as opposed to carrying over a balance and then adding more to it each month.
With trended data playing a large role in your FICO 10 T score, consistency is key, and paying your bills in full every time will help boost your score.
If you want to get a good credit score with FICO 10 and FICO 10 T, try to keep your revolving debt low by paying off your credit cards in full every month.
Lower your credit utilization ratios
With FICO 10 T, it will be more important than ever to be vigilant about maintaining a low credit utilization ratio. Since the trended scoring model accounts for patterns in your credit utilization over the past 24 months, it won’t be so easy to get away with maxing out your credit cards one month and then quickly paying the balance down to improve your score again the next month.
High credit utilization at any point in the past two years could be factored into your credit score, especially if your utilization has been increasing over time.
For this reason, if your credit is being scored with the FICO 10 T model, you’ll get the best results if your credit utilization has been consistently low or if it has shown a pattern of decreasing over time.
However, just because you pay off your credit card in full every month doesn’t mean it will report a zero balance. The balance that reports to the credit bureaus is the balance that you have at the end of your statement period. If your balance happens to be high on that date, then it could negatively affect your score, even if you pay off the balance soon after.
One way to get around this is to pre-pay your credit card bill before your due date and your statement closing date. That way, the balance will be low when the card reports to the credit bureaus, which is better for your credit score.
Another helpful credit hack is to spread out multiple smaller payments throughout the month so that the balance never climbs too high to begin with.
Requesting a credit line increase can be an easy way to improve your utilization rate, but this method should be used with caution if you think it might encourage you to rack up more debt.
Increase your credit limit
One way to easily lower your utilization rate is to increase your credit limit. Spending $1,000 on a card with a credit limit of $5,000 is a lot better than spending the same amount on a card with a credit limit of $2,000.
Increasing your credit limit might be easier than you think. It could be as simple as calling up your card issuer on the phone or applying for a credit line increase online. Most people who ask for a higher credit limit get approved, according to creditcards.com.
However, this strategy is not encouraged for consumers who may be tempted by the higher credit limit to spend even more on the card.
For tips on how to get a larger credit limit, as well as some pitfalls to watch out for before requesting an increase, check out “How to Increase Your Credit Limit.”
Work to improve your credit health over time
With FICO score 10 T including more information about your credit history over the past 24 months, it will be important to demonstrate an improvement in your credit over time. Consumers who have been working to manage their credit responsibly and who have reduced their amount of revolving debt over time will be rewarded.
On the other hand, those whose credit health has been declining due to increasing debt levels or a series of missed payments will see their credit scores take a dive.
Will the New FICO 10 Score Affect the Tradeline Industry?
First, remember that it’s likely that it’s going to take at least a few years for FICO 10 to be widely adopted by lenders (if lenders choose to use it in the first place, which they may not), which means that nothing is changing for the tradeline industry in the near future.
Secondly, many lenders may choose to adopt only FICO 10 and not FICO 10 T because it will be technically easier to implement. For lenders using FICO 10 without the trended data, there is no change to how authorized user tradelines work.
However, things get more interesting when considering the impact of FICO 10 T on buyers and sellers of tradelines. Until FICO 10 T is adopted by major lenders, we can only speculate as to the changes that will result, but here is one possibility.
What If FICO 10 T Reveals a Tradeline’s Balance History?
One concern that consumers may have is that FICO 10 T will expose a tradeline’s previous high balance if it had one at any point during the past 24 to 30 months. That may be true, but we also know that FICO 10 T places a lot of importance not just on the numbers themselves, but on how they change over time.
All of the tradelines on our tradeline list are guaranteed to have a utilization ratio of 15% or lower. If a tradeline had a higher balance at some point in the past two years or so, then it would show a trend of the balance decreasing, since the balance would have been brought down to under 15% in order to participate in the tradeline program.
FICO 10 T rewards downward trends in utilization, so it seems that authorized user tradelines would still provide value even if higher balances can be seen in the past.
If a tradeline has not had a high balance in the past two years, then that means it will show a pattern of consistently low utilization, which is also beneficial.
Conclusion: What Does the New FICO 10 Credit Score Mean for Consumers?
A lot of speculation and bold claims have been circulating about the new FICO scores, FICO 10 and FICO 10 T. Naturally, consumers and tradeline sellers alike are concerned with the question of how these new scores might affect authorized user tradelines.
It is true that FICO has made some significant changes to their latest credit scoring model, and it’s also likely that some consumers may experience marked increases or decreases in their credit scores compared to previous FICO scoring models. Fortunately, however, there is no need to panic.
Follow the general guidelines of good credit to get a high score with any credit scoring model.
First, let’s remember that FICO 10 is not in use yet, and it’s probably going to take a few years or more for the majority of lenders to adopt it. In addition, the scoring model that people are most concerned about, FICO 10 T, will take even longer than FICO 10 to reach mainstream popularity since it requires lenders to learn how to start using a new set of reason codes.
For this reason, consumers do not need to worry about lenders seeing the past two years of their credit histories just yet. However, knowing that widespread use of trended data may be on the horizon, you may want to start preparing your credit now. That way, when trended data credit scores become more popular, your credit will be strong and ready to withstand the changes.
To achieve a high credit score with FICO 10 and FICO 10 T, avoid taking out personal loans if you can, as they will be penalized more heavily than in the past. It’s also important to demonstrate either an improvement in your credit over time or consistently good credit habits, which will be rewarded.
Aside from these special considerations, FICO 10 and FICO 10 T still rely primarily on the same credit score factors you are already familiar with: payment history, credit utilization, length of credit history, credit mix, and new credit. While the peripheral details of different scoring models may vary, the core components always remain the same.
Ultimately, if you work on developing good credit practices in these general areas, your credit will be in great shape no matter which scoring model is used.
People who are serious about improving their credit often wonder what it takes to get the highest possible credit score. For the FICO 8 credit scoring model, the perfect credit score is 850.
As of April 2019, only about 1.6% of scorable consumers in the United States have the elusive 850 credit score, which is actually an increase from 0.98% in April 2014 and 0.85% in April 2009.
There are many other credit scoring models that are used for different purposes and may have different credit scoring ranges. However, since FICO 8 is the most commonly used credit score, we will use the number 850 as the benchmark for the ideal credit score.
Check out the infographic below for some fast facts on how to get the highest credit score possible, then keep reading the article for even more tips on getting the coveted 850 credit score.
Payment History — 35%
Most people who have an 850 credit score have seven years of perfect payment history.
Your payment history is the biggest slice of the credit score pie, so even one late payment or missed payment can significantly affect your score. Negative items can stay on your credit report for up to seven years, so if you miss a payment, you may not be able to achieve a perfect 850 credit score until at least seven years have passed!
To safeguard against the possibility of forgetting to make a payment, consider setting up automatic bill pay for all of your accounts. Be sure to continue to check your accounts regularly in case of any system errors.
If you do miss a deadline once in a blue moon but have otherwise been an upstanding customer, try negotiating with your creditor to see if they will forgive the late payment and wipe it from your record.
FICO says that 96% of “high achievers,” or those with FICO scores above 785, have no missed payments on their credit report.
Essentially, to get an 850 credit score, you just need to follow one simple strategy: make all of your payments on time for a long time. We will further discuss the connection between payment history and time in the “Length of Credit History” section below.
Credit Utilization/How Much You Owe — 30%
The amount of debt you owe compared to your total credit limit is your credit utilization ratio. To get a perfect credit score, you’ll want to keep this ratio as low as possible, both overall and on each of your individual tradelines.
A study by VantageScore and MagnifyMoney found that people with the best credit scores and people with the worst credit scores actually had similar amounts of outstanding debt. However, those with the best scores had an average total credit limit of $46,700—16 times the credit limit of those with the worst scores!
Therefore, for the high scorers, that outstanding debt made up a much smaller percentage of their total available credit than those with low credit limits and poor scores, which highlights the importance of the overall utilization ratio.
This study reported that the average credit card user has an overall utilization ratio of 20%, which is generally considered to be a safe number for maintaining decent credit. To become someone who has an 850 credit score, however, you’ll need to keep it around 5% or lower. As of 2019, FICO says that the average revolving utilization for those with the “850 profile” is 4.1%.
While consumers with 850 credit scores do use credit cards, they tend to keep their utilization ratios around 5% or lower. Photo by Ellen Johnson.
In addition, keep in mind that even if you have a low overall utilization ratio, individual cards with high utilization could still bring down your score. You can read more about this in our article on individual vs. overall credit utilization ratios.
As a hypothetical example, let’s say you have two cards: one with a $10,000 limit and a $0 balance and the other with a $1,000 limit and a $900 balance. Your total available credit is $10,000 + $1,000 = $11,000 and your total debt is $900. Therefore, your overall utilization ratio is $900 / $11,000 = 8% utilization, which is a very good number.
However, your account with the $1,000 limit has a 90% individual utilization ratio! Since you only have two accounts, that means 50% of your accounts have high utilization, and that could negatively affect your credit. According to creditcards.com, maxing out just one credit card can reduce your score by as many as 45 points.
To get around this problem, if you have any individual cards with high utilization, consider transferring the balance to other accounts to keep the utilization ratio on each account as low as possible.
You could also request credit line increases from your creditors, which can lower your utilization ratios and benefit your score. Try using the tips we provide in “How to Increase Your Credit Limit.”
Another way to help with overall utilization is to add low-utilization tradelines to your credit file.
Optimizing this factor also means not closing old accounts even if you don’t use them very often, because their credit limits could be helping your score. To ensure old accounts don’t get automatically closed by the banks for inactivity, try to use them every 1-2 months, perhaps for small, recurring bills.
Length of Credit History (Age) — 15%
This category takes into account age-related factors such as the average age of your accounts, the age of your oldest account, and the ratio of seasoned to non-seasoned tradelines. (A seasoned tradeline is an account that is at least two years old, which is when the account is believed to have a more positive impact on your credit.)
Age goes hand-in-hand with payment history, because the more age an account has, the more time it has had to build up a positive or negative payment history. Together, age (15%) and payment history (35%) make up 50% of your credit score, which shows how important it is to open accounts early and make every single payment on time.
According to FICO, the age of the oldest account of people who have 650 credit scores is only 12 years, compared to 25 years for people who have credit scores above 800. In addition, individuals with fair credit have an average age of accounts of 7 years, compared to 11 years for those with excellent credit.
Cultivating an 850 credit score takes years of maintaining a positive credit history.
FICO reports that the average age of the oldest account of consumers who have 850 credit scores is 30 years old.
We have an in-depth discussion of which age tiers are most significant in our article, “Why Age Is the Most Valuable Factor of a Tradeline,” but the bottom line for getting the best credit score is simply to get as much age as possible. Seasoned tradelines can help by extending the age of the oldest account and the average age of accounts.
Also, keep in mind that it may be impossible to achieve an 850 credit score without a certain amount of age, even if you do everything else perfectly. So if you have stellar credit habits but haven’t yet been able to join the 850 credit club, you may just need to wait patiently for your accounts to age.
Credit Mix — 10%
While the mix of credit is one of the least important factors in a credit score, to get a perfect credit score of 850, you will still need to consider this factor.
In this category, credit scores reward having a balanced mix of several different accounts, including both revolving credit and installment loans. This is because creditors want to see that you can successfully manage a variety of different types of credit.
As an example, a credit file that includes an auto loan, a mortgage, and two credit cards has a better credit mix than a credit file that has four accounts that are all credit cards.
About the “credit mix” credit score factor, FICO says, “Having credit cards and installment loans with a good credit history will raise your FICO Scores. People with no credit cards tend to be viewed as a higher risk than people who have managed credit cards responsibly.”
The total number of accounts is also considered, with more accounts generally being better, up to a certain point.
FICO also states that high score achievers have an average of seven credit card accounts in their credit files, whether open or closed.
Auto loans are common among people who have 850 credit scores.
If you are looking to improve your credit mix statistics, adding authorized user tradelines can increase the total number of accounts and help diversify one’s credit file.
850 scorers also have installment loans in their credit files. According to Experian, the average mortgage debt for consumers with exceptional credit scores (800 or above) is $208,617. In addition, people who have FICO scores of 850 have an average auto-loan debt of $17,030.
Experian says, “In every other debt category except mortgage and personal loan, people with perfect scores had more open tradelines but less debt than their counterparts with average scores—underscoring the value of being able to manage debt while having numerous credit accounts.”
The “new credit” category of your credit score refers to how frequently you shop for new credit. This includes opening up new credit cards and applying for loans, for example. This “new credit” activity is reflected in the number of inquiries on your credit report.
Since seeking new credit makes you look like a higher risk to creditors, each hard inquiry has the potential to drop your score by a few points. Therefore, if you are going for a perfect 850, it’s best to avoid applying for new credit for a while.
However, it is possible to score an 850 with hard inquiries on your record. FICO recently stated that around 10% of 850 scorers had one or more inquiries within the past year, and about 25% had opened at least one new credit account within the past year.
If you need to shop for an auto loan or mortgage, be sure to complete all your applications within a two-week window in order for all of the credit pulls to count as one inquiry. For credit cards, however, each inquiry will be typically be counted individually.
Fortunately, inquiries only remain on your credit report for two years, and FICO scores only consider inquiries that occurred within the past year, so it shouldn’t take long for your credit to recover if you do have new inquiries on your credit report.
Inquiries aren’t the only thing that matters when it comes to the new credit factor of your credit score, however. It also includes data points such as the number of new accounts you have, the ratio of new accounts vs. seasoned accounts, and the amount of time that has passed since opening new accounts. The main idea if you want to maximize your credit score is to not open too many new accounts at once, which can make you look riskier to lenders and bring down your score.
More Tips on How to Get an 850 Credit Score
In addition to optimizing each of the above five categories that factor into your credit score, it is also important to regularly check for errors on your credit report and dispute any inaccurate information both with the credit bureaus as well as with the lenders who furnish the data to the bureaus.
In addition, those with very high credit scores rarely have serious delinquencies or public records on their credit reports, such as bankruptcies or liens. Obviously, this will be easy to avoid if you follow all of the suggestions above, but if you have a history of bad credit in your past, it could take up to 7-10 years to recover enough to get an 850 credit score.
850 Credit Score Benefits
What are the benefits of being in the 850 credit club? In reality, you’ll be able to take advantage of the benefits of having an excellent credit score whether you have a 760 credit score or an 850 credit score. You don’t need to score a perfect 850 to get the best credit cards or the best interest rates on loans.
Essentially, the main benefit of having the best possible credit score is bragging rights!
Final Thoughts on How to Get the Perfect Credit Score
While it’s probably not necessary to get an 850 credit score, it is smart to work toward the goal of having excellent credit by managing your credit wisely, which will eventually get you into the upper levels of high credit score achievers.
The most important factors of your credit score are payment history, utilization, and age. Therefore, to keep your credit in pristine condition, you’ll need to make all of your payments on time, keep your utilization as low as possible, and maximize your credit age. Beyond that, you’ll also want to maintain a balanced mix of accounts and minimize new credit inquiries.
Finally, take advantage of your three annual free credit reports to make sure your credit reports are free of damaging errors.
To summarize, here’s an example of what the credit profile of someone who has an 850 credit score might look like, as we illustrated in the infographic above:
No missed payments or delinquencies within the past seven years A high total credit limit The overall utilization ratio is 5% or lower Individual credit cards each have low utilization, around 5% or lower The oldest account is likely about 25-30 years old The average age of accounts is at least 11 years Typically has at least seven credit card accounts (whether open or closed) Usually has an auto loan and/or a mortgage loan May have additional installment loans Minimal inquiries within the past year No damaging errors on their credit report
Have you ever achieved the perfect 850 credit score? Is it a goal that you are currently working toward? Share your thoughts with us by leaving a comment below!
Myths and misinformation about credit scores, credit reports, and credit repair are extremely common. Unfortunately, many people believe these myths, and their credit suffers as a result of taking incorrect actions.
Let’s get to the bottom of these credit myths and learn the truth about them so you can start improving your credit the right way.
Myth: Everyone automatically has a credit score. Fact: 1 in 5 adults in the United States do not have credit scores.
A report by the Consumer Financial Protection Bureau (CFPB) found that one-fifth of adults in the United States do not have enough credit data to calculate a credit score by traditional methods. These consumers are called “credit invisibles.”
Low-income consumers are particularly susceptible to credit invisibility due to lack of access to traditional credit products. Some consumers may be credit invisible for other reasons, such as a voluntary decision not to use credit.
For those that do not use credit for whatever reason, it is likely that they do not have enough of a credit history to generate a credit score.
Consumers that are credit invisible may be able to generate a credit record by piggybacking on the good credit of others, but don’t assume that everyone has a credit score just by virtue of existing.
Myth: Checking your credit report will hurt your credit score. Fact: Checking your own credit will not hurt your score.
Checking your own credit report results in what is known as a “soft pull,” which means the inquiry does not affect your credit score.
Myth: Your income affects your credit score. Fact: Your credit score does not look at your income.
However, your income can affect your credit indirectly in that it influences the “five C’s” that have been shown to predict credit performance: capacity to pay off debts, the collateral backing a loan, capital available to repay a loan, conditions that affect income and expenses, and the character of the borrower.
Your capacity to pay off debts as well as the collateral and capital they have available to repay loans may all have a relationship with your income.
That’s a big part of the reason why low-income consumers are 8 times more likely than high-income consumers to have no credit score at all. In consumers that do have credit scores, those who reside in low-income areas have lower credit scores. In addition, low-income consumers are 240 percent more likely to have their credit file originated due to derogatory items such as collections.
So while your income is not technically incorporated into your credit score, it can definitely influence your ability to repay debts, which is the basis of a credit score.
Myth: You only have one credit score.
Each consumer can have dozens of different credit scores.
FICO 8 is the credit score most commonly by lenders today, but in some industries, older models or industry-specific models are used instead. For example, there are FICO scores tailored specifically toward auto loans and credit cards, and mortgage lenders are known to use the older FICO score versions 2, 4, and 5. Plus, FICO scores are different for each credit bureau.
VantageScore, which is increasingly used by some lenders as well as for consumer credit education, also has a few versions. The latest version is VantageScore 4.0, but VantageScore 3.0 is still the most commonly used version today.
Altogether, between the many versions of FICO scores and VantageScores, consumers can have dozens of different credit scores.
Myth: Paying half of your minimum payment twice a month counts as two full payments and tricks the system into giving you twice the credit score boost. Fact: Dividing your bill in half and making two payments is the same as paying the full amount once.
This credit myth is unfounded yet often repeated.
If this “credit hack” sounds a little too good to be true, that’s because it is. It is simply not true that you can “trick the system” into thinking you have made two full payments by making two half payments.
Making a payment on a credit account affects two main factors of your credit score: payment history and credit utilization. Let’s discuss each factor individually.
When it comes to your payment history, making a partial payment that is less than the minimum amount due does not satisfy the requirement and will not count as an on-time payment. Only once you have made the second payment for the other half of the amount due will you have satisfied the requirement to be considered paid on time. Therefore, you do not gain any extra benefit to your payment history from dividing your payment into two parts instead of paying the full amount at one time.
As an example, let’s say you have a bill due on the 30th and the minimum amount you must pay is $50. We have laid out the two payment scenarios in the table below.
Scenario 1: Pay the full amount in one payment Scenario 2: Make half of the payment twice
Date Amount Paid Payment Status Date Amount Paid Payment Status
15th
15th $25 Insufficient payment—$25 still due
30th $50 Paid on time 30th $25 Paid on time
As you can see from the table, in both scenarios, you only get the benefit of paying your bill on time once per billing cycle, not twice.
Now let’s discuss the utilization factor. Continuing with the same example, the total amount you are paying toward the account is $50 in both scenarios. Therefore, the overall improvement in your utilization ratio is going to be the same either way.
Now, if the reporting date for that account is in between the first and second payments, since you have already sent a partial payment, you may temporarily get a small boost from having a slightly lower utilization ratio when the account reports to the credit bureaus. But at the end of the billing cycle, the result will be the same.
If you don’t have any credit history, you can being building credit by piggybacking on someone else’s good credit.
If you decide to make extra payments in addition to your minimum payment, which is ideally what all responsible borrowers should be doing, that can certainly help your credit score by speeding up your debt repayment. But simply splitting the minimum payment into two payments won’t do anything to boost your score.
Myth: If you don’t have credit history, you’ll never be able to get credit. Fact: You can start building credit by piggybacking.
While it can definitely be more difficult to get credit when you don’t have any credit history to begin with, it’s not impossible. There are credit products out there designed for people with no credit or bad credit, such as secured credit cards and credit-builder loans.
Another way to start building credit fast is by piggybacking off of the good credit of someone else. You could have someone you trust cosign on a loan or open a joint account with you, or you could become an authorized user on someone else’s seasoned tradeline.
If you are not lucky enough to know someone who has a seasoned account with perfect payment history that they could add you to, consider purchasing tradelines from a reputable tradeline company.
Myth: Paying off a collection will “re-age” the debt because the account falls off your credit report based on the date of last activity. Fact: Collections fall off your credit seven years after the initial delinquency and cannot legally be re-aged.
It is illegal to “restart the clock” on collections.
If you’ve read our article about collections on your credit report, then you know that it is the date of first delinquency (DOFD) that determines when the collection will be removed from your credit report, not the “date of last activity” (DLA).
The reason why some people may believe this myth is because shady debt collectors sometimes illegally change the date of first delinquency to the date of last activity in an attempt to re-age the debt.
As we said, this practice is illegal. If you notice that a debt collector has improperly changed any information about a collection account on your credit report, you have the right to dispute the inaccurate information.
Myth: Paying off a collection will boost your credit score. Fact: Paying off a collection may or may not raise your score depending on which credit score is used.
While it makes sense to assume that paying off a collection should increase your credit score, that is not always the case. In fact, more often than not, this is not the case, although it depends on which credit score is being used.
With FICO 8 and all previous FICO scores, both paid and unpaid collections are categorized as major derogatory items on your credit report. Therefore, paying off the account will not change how it is considered by the credit scoring algorithm, which means your score may not go up at all.
On the other hand, FICO 9, VantageScore 3.0, and VantageScore 4.0 ignore paid collection accounts, so your score should recover after paying off a collection if one of these credit scoring models is being used.
Myth: You should close accounts you’re not using. Fact: You should keep accounts open and use them periodically.
While you might think that closing accounts you don’t need will help your credit score, the opposite is actually true, especially when it comes to revolving accounts such as credit cards.
The main reason for this is that credit utilization is an important part of your credit score, and closing credit card accounts will hurt your utilization ratio by decreasing your credit limit.
It could also hurt your mix of credit, although that’s a less important factor.
In addition, payment history is the number one factor that helps your score. It’s better for your credit to keep the account open, use it for small purchases here and there or a monthly subscription, and pay it off every month to keep building more positive payment history.
The exception to this is if an account comes with an annual fee that’s no longer worth the price or if you can’t resist the temptation to overspend.
Myth: Closed accounts don’t affect your credit. Fact: Closed accounts can have a significant impact on your credit.
Although we just discussed why you shouldn’t necessarily close old accounts, that’s not to say that closed accounts don’t impact your credit. They certainly can, particularly when it comes to your credit age.
Closing an account does not remove its payment history or age from your credit report, so closed accounts still contribute to your credit age. In addition, accounts can continue to age even after they have been closed.
So although it’s best to keep accounts open if you can, having closed accounts on your credit report is not a bad thing. If the account was closed in good standing, it will likely continue to help your credit.
Carrying a balance on your credit cards is expensive and does not help you build credit. Photo by Hloom on Flickr.
Myth: Carrying a balance on your credit cards will help your credit. Fact: Carrying a balance will not help you build credit and it will cost you interest fees.
While it is important to use credit regularly when building credit, it’s not necessary to carry a balance on your credit cards from month to month. If you do this in an attempt to build credit, you will be wasting money by paying unnecessary interest.
The best way to build credit using your credit cards is to use them responsibly and then pay the full balance due each month, or even make multiple payments each month to keep your utilization ratio as low as possible.
Myth: Shopping around for the best rates on a loan will hurt your credit score. Fact: Getting loan estimates from multiple lenders will not hurt your score if you complete the process within a specific time window.
Credit scoring algorithms understand that it’s smart to shop around for the best rates on a loan, not risky. Therefore, credit scores typically have ways of preventing the series of multiple inquiries that result from this process from hurting your score excessively.
If you are applying for student loans, mortgages, or auto loans, FICO scores allow a certain time frame for you to shop around, only counting one hard inquiry to your credit report for this time period. For older FICO scores, the time window is 14 days; for newer FICO scores, the time window is 45 days.
In addition, FICO scores have a 30-day hard inquiry “buffer,” meaning that the algorithm ignores any inquiries that occurred within the past 30 days when calculating your score.
VantageScore uses a simpler method: it groups all inquiries made within a 14-day window of each other together and counts those all as one inquiry, regardless of what types of accounts the inquiries were for.
Myth: You can fix your credit by disputing everything on your credit report. Fact: Disputing everything on your credit report could get you in legal trouble and may not even help your credit.
If there is information on your credit report that is inaccurate, outdated, incomplete, or unverifiable, of course you would want to dispute those items with the credit bureaus. But it’s not necessarily a good idea to dispute negative items on your credit report that are accurate.
First of all, the derogatory items won’t necessarily get deleted from your credit report, especially if you don’t provide proof that they are inaccurate. They might just get updated with the correct information, or they may get deleted temporarily until an investigation determines the items are valid and they go right back on your credit report.
Furthermore, the credit bureaus don’t have to investigate disputes that are deemed “frivolous,” and they could decide that some of your disputes are frivolous if you are disputing every item in your credit file, regardless of accuracy.
Plus, lying on a credit dispute could be considered fraudulent. According to the FTC, “No one can legally remove accurate and timely negative information from a credit report.”
Even if you were to get away with disputing everything on your report, this might not necessarily help your credit as much as you hoped. If you’ve gone through an aggressive credit sweep and have nothing left on your report, then you essentially have no credit history and likely no credit score, which could be just as problematic as having bad credit.
Myth: CPN numbers can be used in place of social security numbers to create a new, clean credit file.
Using a CPN to apply for credit is a federal crime. Photo via seniorliving.org.
Fact: CPNs are illegal and using one to apply for credit is a federal crime.
Although you might have heard some people claim that “credit profile numbers” or credit privacy numbers” are a legitimate way to protect your privacy or wipe your credit slate clean, in reality, there is no legitimate or legal source for CPN numbers.
Most of the time, these numbers are either fake social security numbers that have not been created yet or real SSNs that have been stolen from children, the elderly, deceased people, people who are incarcerated, and people who are homeless. Either way, using a CPN means getting involved in identity fraud, which is a federal crime.
Myth: The credit score you check online is the same one lenders see when they pull your credit. Fact: Lenders often do not use the same credit scores that are provided for free online.
When you check your credit score for free online, the credit score you see is most likely going to be a VantageScore. This is the score most commonly used by free online services such as Credit Karma.
The majority of lenders, however, primarily use FICO scores, although some lenders are now starting to use VantageScore. Just keep in mind that the score you see online may not be the same as the score lenders see, as there can often be a significant difference between your VantageScore and your FICO score.
If you want to check your FICO score for free, check with your credit card issuer, since many now offer this service.
Myth: If you don’t have any debt, you will have a good credit score. Fact: You need to use credit to build your credit score.
Having good credit doesn’t just come down to the amount of debt you have—that’s just one part of your credit score. Payment history is the most important part of a credit score, so if you’ve never had debt and you don’t have any payment history, you might not even have a credit score at all.
To get a good credit score, you have to use some form of credit and demonstrate that you can use credit responsibly by building up a positive payment history over time.
Myth: There’s no need to check your credit report until it’s time to apply for a big loan. Fact: It’s important to monitor your credit regularly.
Waiting to check your credit score until you need to apply for credit is a mistake because there could be errors on your credit report bringing your score down. Studies estimate that about one-fifth of consumers have at least one error on their credit report, some of which could be serious enough to result in higher interest rates, less favorable loan terms, or being denied credit.
It’s important to keep an eye on your credit so that you can correct errors and fight fraud as soon as possible instead of waiting until it’s too late.
Myth: A late payment will make your score go down by 50 points. Fact: There is no set amount of points that is associated with any particular item on your credit report.
While it is certainly possible that a 30-day late payment could cause a 50-point drop (or more) in someone’s credit score, this is not always going to be the case. There is no fixed number of points that your score will go up or down by for each item on your credit report. Rather, the way in which a late payment affects your score is always going to depend on your individual credit profile.
There is no set amount of points associated with missing a payment.
Credit scoring algorithms are very complex and they incorporate hundreds of variables, such as how recent the late payment is, whether you have other late payments in your credit history, and how severe the delinquency is, not to mention the myriad other variables associated with the other categories within a credit score.
Because delinquencies on your credit report are always going to be relative to whatever else is in your file, there is a “diminishing returns” effect where the first late payment hurts your score the most and each subsequent late payment tends to have a smaller impact. Someone who has a high credit score and has never missed a payment before is going to experience a severe drop from their first missed payment, whereas someone who already has lates on their record and a lower credit score is going to be hurt less by a subsequent late payment.
According to credit expert John Ulzheimer in a blog article, “Delinquencies, like inquiries, do not have independent value… It is entirely inappropriate and incorrect to say that ‘X’ lowered my score by ‘Y’ points.”
He continues, “The late payment didn’t lower your score but because adding a late payment to a credit report moves other things around it caused your score to be different than it was before the late payment was added. If your score is 50 points lower it’s not as if the new late payment lowered your score 50 points…but because the addition of that item caused a different evaluation of EVERYTHING on your credit reports…the new reality for you is 50 points lower.”
The same principle goes for other items on your credit report as well, not just late payments.
Myth: You don’t have to worry about your kid’s credit. Fact: You should keep an eye on your kid’s credit report, too.
The proliferation of scammers and hackers stealing people’s private information means even your kid’s credit profile could be at risk of identity theft. When people use “credit profile numbers” (CPNs), for example, these numbers are often real social security numbers stolen from children.
Make sure you monitor your kid’s credit in addition to your own.
You don’t want to wait until your child is grown up and ready to apply for credit to realize they have bad credit as a result of identity theft. Consider freezing your kid’s credit to prevent fraudsters from opening accounts in their name.
Myth: Everyone’s credit score is calculated in the same way. Fact: Credit scores have “scorecards” that categorize consumers and score them differently.
You already know that credit scoring algorithms are extremely complex, but what many people don’t know about is the “scorecards” or “buckets” within each credit scoring model. These “buckets” consist of different categories of consumers.
For example, according to John Ulzheimer, “There are scorecards for thin files or those with few accounts, bankruptcy, derogatories, and those with clean credit files… Comparing like populations gives this population an opportunity to be considered based on [the] behavior of that group rather than a comparison to another, better group.”
The credit scoring formula is different for each bucket. In other words, items on your credit report can be treated differently based on which scorecard you fall into.
Sometimes your credit score changes in a way that you don’t expect. For example, perhaps an inaccurate collection account got deleted off of your credit report and your score went down, instead of up. This could be because you changed scorecards as a result of the deletion, causing your credit score to be calculated in a different way. Essentially, you might now be at the bottom of a different bucket instead of at the top of your previous bucket.
It’s always good to keep the concept of scorecards in mind, especially when trying to predict any kind of change to your credit score. You can never guess exactly how your score will change because of all the complexities and trade secrets that go into credit scores.
Conclusions
Unfortunately, there are tons of credit myths out there, and believing them may lead you to mismanage your credit and eventually end up with poor credit. We hope that this article helped to dispel many of the misconceptions about credit and helped you get started on the path to better credit.
What credit myths have you heard of? Did you use to believe any of these? We’d love to hear from you, so share your experience with us in the comments!