The standard credit range for both FICO and VantageScore is 300-850. This range has led many people to believe that they need perfect credit in order to receive the best rates on lending products.

woman at the gym

Fortunately, you don’t need a perfect credit score to receive favorable rates from lenders. What you should be aiming for is a credit score of at least 740 or higher. Achieving this score will allow you to qualify for the lowest rates.

This article will explain why a perfect credit score isn’t necessary, and how you can improve your credit if it isn’t as high as you’d like.

What is the highest credit score you can get?

The highest credit score you can get is 850. Individuals with a score this high have near-perfect credit management, which is why only 1.2% of consumers in the U.S. have achieved this feat.

In comparison, the average credit score in the U.S. is 704. Here is an overview of the FICO credit scoring model:

  • 300-579: Very poor
  • 580-699: Fair
  • 670-739: Good
  • 740-799: Very good
  • 800-850: Exceptional

If an 850 credit score sounds impossible to you, then there’s no need to worry. Achieving a perfect credit score isn’t necessary or even a goal you should be trying to shoot for.

In order to qualify for the best rates, you just need to have a credit score in the very good range. So while an 850 credit score isn’t necessary, you should be aiming for a credit score of 740 or higher.

Why does your credit score matter?

Your credit score is kind of like a snapshot of how well you’ve been managing your debt. If you have a high credit score, lenders will assume that you are less of a risk of defaulting on a loan.

But if your score is low and you have a history of not paying your bills on time, lenders will see you as more of a risk. They may still be willing to lend to you, but you’re going to pay a lot more in interest. A low credit score means you’ll end up paying more for things like your mortgage, personal loans, or auto loans.

A poor credit score can affect your life in other unexpected ways. The Society for Human Resource Management found that 47% of employers take credit scores into consideration when they are making hiring decisions.

And landlords may check your credit score before deciding whether or not to accept you as a tenant. So if your credit score falls in one of the lower ranges, it’s worth putting in the effort to raise your score.

How is my FICO score calculated?

If you’ve never actively worked on improving your credit before then it can feel daunting when you’re just getting started. However, this process will be much easier if you understand how your credit score is calculated.

FICO scores are calculated using five different categories. Each category is given a different weight in how it affects your overall rating:

  • Payment history (35%): Your payment history is simply whether or not you pay your bills on time. This category accounts for the most substantial portion of your credit score. So if you struggle with making your monthly payments on time, your credit is going to take a hit.
  • Amounts owed (30%): How much of your available credit are you currently using in comparison to your available credit? This figure is what’s known as your credit utilization ratio. If you regularly max out your credit cards and use up all of your available credit, this will be a sign to lenders that you may be over-extending yourself.
  • Length of credit history (15%): Typically, a longer credit history will help you achieve a higher score because the credit bureaus have more data to work with. But if your credit utilization ratio is low and you pay your bills on time, even new borrowers can achieve a high credit score.
  • New credit (10%): Opening too many new accounts within a short period of time can negatively affect your credit. This fact is something to be mindful of whenever you’re considering taking out a new credit card.
  • Credit mix (10%): Lenders like to see that you’ve managed a variety of different types of credit. For instance, having an auto loan, credit card, and installment loan will look better than just having three open credit cards.

How can I improve my credit score?

Hopefully, by now, you can see that there is no mystery involved in improving your credit score. There are many practical steps you can start taking right away. Listed below are five steps you can take to start improving your credit score today.

1. Remove any derogatory marks from your credit report

The best place to start is by requesting a free copy of your credit report. You should look for any inaccurate information or derogatory marks on your report. If there are any inaccuracies, you can request to have them removed from your credit report.

If you have any derogatory marks or outstanding payments, you can contact your lender and request a goodwill adjustment. This means that you send your lender a letter offering to pay the debt in full in exchange for them removing the marks from your credit report.

2. Keep your credit utilization ratio low

As you can see from how your FICO score is calculated, your credit utilization ratio plays a big role in your overall credit score. You should always aim to keep your credit utilization below 30%, but the lower, the better.

3. Keep your cards active

If you’re trying to pay off debt, then you may be tempted to cancel your credit cards so you don’t spend anything on them. But canceling old credit cards is pretty much always a mistake because it can hurt your credit score.

The best thing you can do is keep those accounts open and either don’t use them, or pay them off at the end of every month. This will help build your credit history and will ensure that your credit utilization rate stays low.

4. Pay your bills on time every month

Paying your bills on time every month is a must if you want to maintain a good credit score. If you’re struggling to pay your bills then you may need to evaluate your budget and see whether there is anything you need to cut out to make room for more cash flow. You can also consider setting up automatic payments so you know you’re never late on a payment.

5. Use a variety of different accounts

This isn’t a huge factor in influencing your credit score, but it’s a good idea to use a variety of different lending products. This will show lenders that you have experience paying off multiple different types of loans.

Final Thoughts

Achieving an 850 credit score isn’t necessary, but reaching a score of 740 or higher is a good idea. A FICO score of 740 or higher will ensure that you qualify for the best rates and end up paying less money in interest over the life of the loan.

If your credit score is lower than you would like, there’s no reason to panic. By making a few simple changes you can start improving your credit score right away. Focus on paying your bills on time, keeping your credit utilization low, and regularly checking your credit report for derogatory marks.