Dallas Fort Worth Area Homes and Real Estate

Often times I get asked what it takes to get the highest, or perfect, credit score.  While having a perfect credit score might be something cool to brag about to your friends, this will not necessarily win you any additional brownie points with creditors if you already have what's considered an excellent credit score. 

WHAT IS CONSIDERED "EXCELLENT CREDIT"?

That depends on who you ask since every creditor has their own definition of "excellent".  Credit scores can range anywhere from 300-850 (with 850 considered "perfect").  I can tell you in my almost 10 years in the mortgage industry, I've never seen anyone with a perfect 850 score, nor am I aware of any other loan officers that have.  It's like getting a perfect 10 in gymnastics, which is something only a few people in the world can achieve.  And unfortunately, there's no gold medal for a perfect credit score.   

In the mortgage world, a 720 is considered excellent for nearly every loan program.  There is no penalty for having a credit score of 720 or above, and having a higher credit score does not mean you will get a rate that's below market.  All rates have a theoretical floor on any given day, meaning there is a certain level that banks have to charge in order to at least break even.  No matter how good your credit score is, banks will not lose money to give someone a loan with excellent or even perfect credit. 

Most other creditors consider a score from 700-720 to be excellent.  The national average for credit scores is between 648 and 709, depending on where you live.  So 720 is above average no matter how you look at it. 

THERE IS BASICALLY NO ADVANTAGE TO HAVING A PERFECT CREDIT SCORE VERSUS AN EXCELLENT CREDIT SCORE.

Once your credit score is above a 720, there is little need to make a special effort to raise it any higher, although having some cushion to prevent changes from making it fall below 720 might be a good idea since many factors can affect the score.  For example, if you have a 720 credit score and then proceed to charge a credit card above 50% of it's credit limit, your score will probably drop several points.  The same is true if you were to have a late payment, multiple credit inquiries from credit card companies within a short timespan or if you paid off an installment account, such as a car payment, that automatically closed once it was paid in full.  Inquiries can also take off a few points, but they won't make much of a difference unless you are rapidly applying for many credit cards within a short time frame. 

But don't panic if this happens.  More than likely, your score will improve in a little bit of time.  If your score dropped because of a higher balance on a credit card, try paying the balance down where it's below 50% of the credit limit and it's unlikely to go above this threashold with any new purchases you will make over the next month.  For example, if you have a card with a $2000 credit limit and you charge an average of $300 per month, you should pay the balance down to $700 or below so the balance is not likely to ever exceed $1000.  Since most credit card issuers report the actual statement balance to the credit bureaus each month, they will likely show the highest balance you will have on the card before your payment gets credited.  Keep that in mind when attempting to optimize your score. 

The bottom line is that consumers should target a score in the mid 700's in order to have AND maintain an excellent credit score and credit rating.  Of course, most lenders do consider many other factors besides just credit score (especially mortgage lenders), and it's important to be aware of those factors as well.  Besides credit score, your debt ratio, stability of employment, income, cash reserves and equity (or down payment) are also highly considered.  So don't obsess about having a perfect credit score.  You will most likely be making alot of effort for no additional benefit.