Not sure what with this idea some people got in their heads – how to achieve highest credit score possible, which would be 850 on most commonly used credit score scale today. For many I guess, it is just like a game – can I do it and what it takes. I can tell you that it takes quite a lot to obtain best FICO scores. And time is one important aspect. Different account types is another. But before I will try to explain on how you can try to reach the highest possible credit score, be aware, it is hard work with little reward. Consumers with the second or third best FICO scores, e.g. up to 100 points lower would get practically the same rates and terms on their loans. Then again, I know of many with already decent abs, who want Mark Wahlberg abs. Go figure.
Here are several things that I have noticed while reviewing credit reports of clients with average credit score of 820 and higher (I think I have seen may be two dozens over the years), talking to my colleagues, and what I have found researching on Internet.
1. Seasoning is important and I am not talking about food flavouring but about the length of time payments have been made on a debt, as well as account age. The time your accounts have been opened matters, many best FICO scores feature accounts opened on average 20 years ago. So it is good to keep your 30 year mortgage with original lender and hang on those student loans forever.
Interesting side note, the highest credit score I have seen was 842 with Equifax. That lady had average account age of 14 years. Her TransUnion and Experian score were 810 and 827 respectively.
2. Seems like FICO algorithm likes accounts that are at least 2 years old. Fresh accounts are not given enough points to make a noticeable impact on credit score. All the high FICO score folks I have worked with, had credit accounts opened on average for 42 months.
3. Is total number of active accounts important? Some experts suggest that too many open accounts will negatively affect your score since a large number of accounts pose higher risk to lenders. On average, I have seen that borrowers with 4 to 6 accounts have the best credit scores. But I don’t think having few more established credit lines will seriously hurt.
4. Account types are important. FICO likes to see a nice mixture of home mortgage, installment loans and revolving accounts. Revolving accounts do not have to carry balance. If they do, utilization rate (ratio between balance and credit limit) should be kept below 15 percent – for each account and for sums of balances to sums of limits if there are several. Typical credit report I observed has mortgage, auto loan, two credit cards. The borrower with highest credit score had also line of credit and 17 year old student loan with $2,300 left. Typically the installment accounts I have seen from this group (mostly car loans) have less than $2,000 left.
5. The number of inquiries is close to zero. Most of the credit reports had none, few had 2 or 3 within last 6 months. The people with best FICO scores are not actively seeking for credit. Rather, they conservatively pay, bringing balances lower and borrowing little on their credit cards. The did refinance their mortgages but no more than 3 or 4 times in the last 7 to 8 years.
6. None have had late a payment, collection however old it could have been or public record. The Derogatory Accounts section as well as Public Records were clean.
Thus, for those who still desire to get the highest credit score possible, you should be mature, almost middle age person who pay diligently, do not seek credit, do not run up credit cards and keep your car on average of 5 years. Old student loan with low balance helps too.
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