Today, given the state of economy, when lenders are more reluctant than ever to advance loans to people with less than satisfactory credit, the significance of possessing a good credit score has dawned on many borrowers. Fair Isaac Corporation (FICO), a California-based company developed the first credit scoring system, using certain standard scales for different parameters and is generally accepted by all credit scoring institutions bureaus.
The three major credit bureaus, Equifax, Experian, and TransUnion, use their own version of determining scores. Naturally, each bureau has different score ranges and subsequently varied highest possible scores.
What Is the Highest Credit Score Possible?
Here, we have listed the different ranges of credit scores according to various credit bureaus popular and accepted by lenders and financial institutions.
- The popular FICO Score (based on the Fair Isaac Corp model) has a highest possible credit score of 850. (score range is from 300 to 850)
- Equifax Credit Score (based on BEACON scoring model) has a highest possible score of 850 (score range is from 280 to 850)
- The Experian Credit Score (based on FICO model) has a highest possible credit score of 830. (score range is from 330 to 830)
- The TransUnion Credit Score (Empirica Scoring Model) has a highest possible credit score of 850. (score range is from 300 to 850)
- The VantageScore (formulated by Equifax Experian and TransUnion) has a highest possible credit score of 990. (score range is from 501 to 990)
In reality, very few people have this perfect score. The range where your credit score figures is considered an invincible factor in order to sanction your interest margins when you plan and apply to buy a car, home or finance to start your own business. It is when you apply for loans, that the bank determines how consistent you are in paying the debts. Maintaining a decent credit rate puts you in better stead, as banks may not have any relative issues in passing your loan appeal thereby also providing you with a lower rate of interest.
What Constitutes a Credit Score
The knowledge of how the credit score components are calculated, having a percentile attached, or what rules are followed while declaring the score as a complete 100% is, and perhaps would remain a well-kept secret with FICO. However, it is possible for us to understand as to what the components are, based on which the score is calculated.
This component constitutes 35% of the total credit score. Simply put, it determines your efficiency in paying your bills in the past. If you have had a credible payment history, your score will be positive and affirmative.
This being 30%, is a component that deals with the ratio between the total available credit and the credit that you use. If you want that your credit scores be high, your credit card must display a higher retaining ability than your usage ability. This way, you also show that you have no issues with the pay-back policies as you are not financially burdened.
Length of Credit History
This component shares its identity with that of payment history. Possessing 15% of the total credit score, it calculates the period of your credit card usage and heavily depends on how regular you have been in paying your bills.
Comprising 10% of the total credit score limit, new credit is an intelligent tactic to manage and restore your credit; however ,opening one or more new accounts for yourself can impact your score temporarily.
Types of Credit Used
The remaining 10% of your credit score dictates the type of credit you used. It is always advisable for one to use a mix of installment and revolving credit, with keeping the utilization of revolving credit under the 10% limit.
Does It Help to Have the Highest Credit Score?
Having a high credit rank is definitely good. However, the highest credit score does not guarantee people of receiving exclusive benefits that people with credit scores in the higher end of the credit range cannot hope to receive. In other words, as long as a person's credit score lies in the higher end of the credit score range and he/she is classified as a prime borrower, the person can hope to receive all the advantages that people with a FICO score of 850 can avail. Considering this, the following discussion on the advantages of a high credit rate assumes relevance.
Advantages of a High Credit Score
Low Interest Rate
In the current scenario, people with credit scores in the range of 780 and 850 are classified as prime, and they can hope to procure a loan at a relatively low rate of interest as compared to people with lower scores. Again, a borrower with a credit score of 780 will have to discharge a loan that bears the same rate of interest as a borrower with a score of 800 or 850. This is because both credit scores lie in the prime range. Borrowers with credit scores less than 780 will face less favorable terms, while borrowers with credit scores less than 620 may find it difficult, if not impossible, to procure a loan in the current scenario.
People who need homeowners insurance and auto insurance need to have good credit scores since the chances of being covered (insured) depend on the borrowers having good credit scores. The credit score of a person also determines the premium that is charged on insurance. This is because lenders have noticed a distinct negative correlation between credit scores and the claims filed.
There is a connection between credit scores and job offers as well, since a high credit score indicates the ability to 'manage' finances. Many employers feel that it is a reflection of a person's ability to 'manage a job' that requires them to shoulder responsibilities.
These advantages, and many more, can accrue to a person with high credit scores. Attaining the highest credit score possible is definitely admirable, but from the practical perspective a person can get the best deal as long as he/she is a prime borrower.