What Is the Highest Credit Score That Matters?

By on May 21, 2019
Credit Score

You hear a lot of people brag about having perfect credit, but what does that really mean? It’s not likely they all have credit scores of exactly 850, the theoretical maximum. It’s possible some do, but that score is only achievable by literally managing your credit to a level of detail that perfectly calibrates your outstanding debt to your income. That’s just not likely for most borrowers. They might mean they’ve never missed a payment, gotten a late fee, or gotten turned down for a loan. That certainly feels like perfection to a lot of people, but it isn’t the same thing as having the highest credit score. In fact, most people wouldn’t really notice their access to credit change if it went from the top tier scores to the second.

Functionally, perfect credit isn’t a single highest score. Instead, it’s a range of scores that are all considered to be excellent, and that all qualify for the best rates available from a given lending institution. That range is the span between 800 and the theoretical maximum. There’s a good reason for banks to use a range instead of a single number, too. Your score shifts on a daily basis, due to a number of factors, and each credit reporting agency calculates the rating according to a different set of priorities. By using a range, they ensure they are giving priority to people who remain within a window of optimum behavior without penalizing the ebb and flow of credit scores due to regular payment cycles, short-term credit draws, and the natural dip from ordering a credit report as part of the preapproval process for loans.

What Do Borrowers Get Out of Having High Scores?

Most loans are at least available to all those with good credit or better, and many only require fair credit. What does that mean? It means most people with a score over 670 don’t have trouble getting financing, and people between 620 and 670 frequently have a lot of options yet, even if some avenues are closed. The difference in access doesn’t really change much from good credit to great to excellent. What changes is the cost of doing business? Credit scores are a matter of calculating risk, and the higher your score, the less risk you represent. Since the way to offset risk in lending is with reward, those with lower scores wind up paying higher rates to access the same service. This theoretically offsets the increased risk of default by making it possible for the investor to realize greater returns during the part of the loan that is paid, as well as greater returns overall if it is paid off.

When you have a credit score above 800, there are a few things lenders just automatically do as well:

  • Credit line increases are offered, sometimes automatically implemented on a periodic review basis
  • Interest rates may be automatically reduced on variable products
  • Insurance rates may be reduced at renewal time

High Business Credit vs. High Personal Credit

When it comes to business credit scores, lenders tend to be a little more forgiving about what loan products you can access if you can show proof of income to offset the effect of any debt balances on your credit report. Lenders also tend to care more about the current payment than the total debt. There’s still a maximum healthy debt-to-income ratio, but it’s a little more negotiable when your cash flow is demonstrably good. Personal credit is a little more strict about lending for secured assets, but it’s also a little less strict about unsecured debt. As a result, many people have personal credit scores that affect their business credit scores. It’s also worth noting that the scoring system for business scores has a different theoretical maximum.

Most business credit reporting agencies issue scores with a theoretical maximum of 100, with a few exceptions that include FICO’s business index. Those scores also come with a more detailed report that goes beyond the simple number and includes company filings and other financial information not commonly included in consumer credit reports. For that reason, it’s hard to know what number to throw out as excellent for a business credit score.

Want To Raise Your Score?

The best way to raise either your personal or business credit score is to pay off outstanding bills, make regular payments to current debt accounts, and reduce your unsecured debt. If you can follow through with those three steps, your scores will eventually rise. If you need to make them rise more quickly because of a financing goal, it’s easy to get help figuring out what to prioritize if you consult with the right financial professional. One of the best ways to start is by getting your hands on an initial report you can use to see what you have out there, what’s costing you points, and where your efforts will best pay off.

 

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One Comment

  1. Mike Roberts

    June 18, 2019 at 11:35 pm

    I’ve been a mortgage professional for many years and, for all intents and purposes, once you’re above 720 to 740, it doesn’t really matter anymore. There might be a few loan programs out there that require a 780, but your credit is generally as good as it needs to be once you’re above 720 to 740.

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What Is the Highest Credit Score That Matters?