By Taylor J Kovar, CEO – Kovar Capital
Hey Taylor – Can we talk about credit scores? I understand credit, I know I need a high number, and I generally understand how to improve my score. But, how good does it actually need to be? How high should I be aiming for? – Mariah
Hey Mariah – I’d love to talk about credit scores. This is another one of those financial topics where advisors will say, “Improve your credit score!” and then they won’t tell you why or how or what any of it means. So let’s dig in a little.
The highest your score can reach is 850 (for personal credit, business credit usually caps at 100). Chances of you hitting or coming close to hitting 850, are slim to none. According to scoring companies FICO and VantageScore, less than one percent of people hit 850. Congratulations to those select few, but everyone else doesn’t need to worry about having a perfect score.
If you don’t need to be perfect, what do you need? The goal with your credit score is to be excellent, and that’s generally defined as 720 or above. From 720 to 850, you’re just competing with other awesome people, and the majority are below the 800 mark. FICO estimates about 20% of scores were over 800 in 2017.
The 800 club, while not necessarily better than someone with a 770 score, is a benchmark that many people strive for. If you’re looking to become one of these credit elites, a few of the common attributes include credit card debt under $3,500, less than 7% use of your credit limit, and zero late payments on your report. If you’re late in reimbursing a lender, that strike usually stays on your credit history for seven years.
Again, trying to have the absolute best credit score only matters for certain people. For most of us, being in the excellent category is sufficient. A score above 720, or even 700 in some cases, will get you access to quality loans, help you increase your credit limits and often have interest rates lowered by card providers.
If you have a score in the upper 700s, the main difference between you and someone with an 840 is how much obsessing is done over the credit score. You reach a point where the actual number doesn’t matter, and it’s just tinkering to get FICO or whichever scoring company to give you perfect marks. If you’re working hard to get to 850, you might have too much time on your hands.
Hopefully that explains a little bit about credit and which numbers actually matter. Do what you can to keep your score high, but don’t stress when you find out a friend has an 820 and you’re only at 790. Take care, Mariah!
