Having excellent credit is something many people strive for when trying to manage their finances and make major purchases that require financing, like buying a house or car. But what exactly constitutes “excellent” credit, and how can you work towards building and maintaining excellent credit yourself? Here we’ll explore what makes up an excellent credit score, the benefits of having excellent credit, and tips for how to reach and preserve excellent credit.
What is an Excellent Credit Score?
In the United States, credit scores range from 300 to 850. This range helps lenders determine the risk of lending money to a given individual – the higher the score, the lower the risk. An “excellent” credit score generally falls between 750 and 850. Here’s a breakdown of the credit score ranges according to Experian:
| Credit Score Range | Rating |
|---|---|
| 800-850 | Exceptional |
| 740-799 | Very Good |
| 670-739 | Good |
| 580-669 | Fair |
| 300-579 | Very Poor |
As you can see, a credit score between 750-850 falls under the “very good” and “exceptional” categories, which is considered excellent credit. Specifically, a score of 800 or above is generally thought of as truly exceptional credit.
How is an Excellent Credit Score Calculated?
Credit scores are calculated based on the information in your credit report, which is kept by the three major credit bureaus: Experian, Equifax, and TransUnion. While the exact formulas used by each bureau vary, the following factors make up a major part of your score:
- Payment history (35% of your score) – This reflects how consistently you pay bills and debts on time. Late payments can significantly ding your score.
- Credit utilization (30% of your score) – This is how much of your available credit you are using. Using more than 30% of your total available credit limits can hurt your score.
- Credit age and mix (15% of your score) – This reflects the average age of your accounts and mix of credit types (installment loans, revolving credit, etc.). Older accounts and a wider mix help your score.
- New credit applications (10% of your score) – Opening many new accounts in a short period can indicate higher risk and hurt your score.
- Other factors (10% of your score) – This includes things like how many accounts you have open and any recent credit inquiries.
As you can see, responsible behaviors like always paying your bills on time and keeping credit utilization low are major factors in achieving an excellent credit score. Checking your own credit report regularly and addressing any errors can also help boost your score.
Benefits of Excellent Credit
Putting in the work to build excellent credit can pay off in many ways. Here are some of the key benefits that come with excellent credit:
Better Interest Rates
The higher your credit score, the lower interest rate lenders are likely to offer you on financing, loans, mortgages, and credit cards. This translates to major interest savings over the lifetime of loans and debts. For example, when taking out a $300,000 30-year mortgage, a person with a credit score of 760+ could pay nearly $100,000 less in interest over the life of the loan compared to someone with a 620 credit score.
Increased Buying Power
Exceptional credit scores unlock better approval odds and higher borrowing limits. This allows you to qualify for bigger loans and higher limits on credit cards. With excellent credit, you’re more likely to get approved to finance expensive purchases like cars, boats, and real estate.
Higher Chances for Apartment and Employment
Many landlords and employers check credit reports as part of applications. Excellent credit can give you a leg up against other applicants when applying for competitive jobs or rental properties.
Better Insurance Premiums
In addition to lenders, many insurance companies also look at credit scores when pricing policies. Those with higher scores tend to get lower car insurance rates and better premiums on home and life insurance as well.
Peace of Mind
On top of the concrete financial benefits, maintaining excellent credit also provides the invaluable benefit of peace of mind. You’ll face less stress knowing your credit is in great shape and that financing options are available when you need them.
Tips for Building Excellent Credit
Here are some key strategies to employ if your goal is to build or maintain a credit score over 750:
Always Pay Bills on Time
Payment history has the biggest impact on your credit scores. Set up automatic payments or payment reminders to ensure you never miss a due date. If you do pay late, call and ask if the company will waive the late fee – this can help minimize the damage to your score.
Lower Your Credit Utilization
Ideally, you want to keep your credit utilization under 30%. One way to do this is paying down balances before the statement closing date. You can also ask for higher credit limits to lower your overall utilization.
Avoid Closing Old Accounts
While closing unused credit cards can seem like a smart idea, it can actually hurt your credit age mix. Keep old accounts open even if you aren’t actively using them.
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When opening new credit, space out your applications over several months. Applying for too much new credit at once raises risk flags and can cause your score to drop.
Check Credit Reports Regularly
Mistakes happen – checking your credit reports frequently helps you identify and dispute errors in a timely manner before they affect your scores.
Become an Authorized User
Ask a family member with excellent credit to add you as an authorized user on one of their longstanding accounts. This can give your credit a boost by improving your age mix.
Dispute Any Errors
Finding a mistake on your credit report? Submit disputes immediately both online and via certified mail. Unverified blemishes must be removed from your report.
Limit New Hard Inquiries
Hard inquiries from applying for new credit can impact your score. Limiting applications and grouping them together can help minimize this effect.
Maintaining Excellent Credit Over Time
Once you’ve achieved excellent credit, consistency is key in maintaining it long-term. Here are some tips for preserving your top-tier credit year after year:
- Check each credit report annually and continue disputing any errors.
- Set payment reminders to avoid ever becoming late on bills.
- Keep credit utilization low by paying balances early and asking for limit increases.
- Be selective about applying for new credit – space out applications by several months.
- Leave old accounts open to preserve the age of your credit history.
- Sign up for credit monitoring to catch any suspicious activity.
- Consider setting up automatic payments to remain diligent on bills.
With consistency and diligent credit management, an excellent credit score of 750+ can become an ongoing reality. Over time, the financial benefits and advantages will continue paying dividends in aspects of your financial life.
What is a Good Credit Score? How it Compares to Excellent Credit
While a credit score over 750 is considered excellent, a score between 670 to 739 is still deemed good credit. Here’s how good credit compares to having excellent credit:
Interest Rates
With good credit, you’ll typically get offered better interest rates than those with fair credit, but not as good as the rates offered to consumers with excellent scores. The difference in mortgage rates between good and excellent can be as much as 0.5%.
Loan Approvals
Applicants with excellent credit are very likely to be approved for most loans and credit applications. Those with good credit have decent approval odds, but may fail to qualify for larger loans or the very best terms reserved for exceptional scores.
Credit Limits
While a good credit score meets the minimum threshold for many cards and loans, an excellent score increases the likelihood of being approved for higher limits and borrowing power.
Security Deposits
Renters with excellent credit can often avoid paying security deposits. Good credit may still require deposits, just not as large as those with poor credit.
Insurance Premiums
Good credit typically qualifies you for the baseline rate, while those with excellent credit get bumped up into the preferred rate tiers for the lowest insurance premiums.
Overall, good credit provides access to competitive interest rates and approval odds on prime loans and credit. But excellent credit gives you access to the very best terms and limits available.
What About a Credit Score Over 800?
While 750+ is considered excellent credit, is there any added benefit of going over 800? According to Experian data, only 14% of Americans have credit scores over 800 as of 2022. Here is what setting your sights on 800+ credit could mean:
- The very lowest interest rates on mortgages, auto loans and credit cards.
- Being approved for the absolute highest credit limits.
- 8 in 10 chance of securing a mortgage (compared to 6 in 10 for those with scores of 740-799).
- Ability to qualify for 0% interest introductory credit card offers more frequently.
- Higher chance of being approved for exclusive top-tier credit cards and rewards programs.
- Lowest insurance premium rates across industries.
The benefits of going over 800 versus sticking in the 750 range are marginal. But if you are gunning for 100% approval odds and rock bottom interest rates, hitting over 800 can help get you there.
The Road to Excellent Credit
Here are the key steps to take if you want to work your way up to the credit score big leagues:
- Obtain copies of your credit reports from Experian, Transunion and Equifax. Check them closely for any errors and dispute inaccurate information.
- Pay down balances to lower your credit utilization. Shoot for under 10% on each card.
- Never miss a payment deadline – set up autopay if you struggle to pay bills manually.
- Keep your oldest credit card open to preserve your length of credit history.
- Apply for credit limit increases every 6 months to keep utilization low.
- Mix up your credit types – having both installment loans and revolving accounts can help.
- Only apply for new credit when needed to limit hard inquiries.
- Sign up for credit monitoring alerts to stay on top of your credit activity.
- Continue monitoring credit reports and challenging errors as they arise.
With a diligent strategy and commitment to smart financial behaviors, achieving excellent credit is an attainable goal for most people. The financial benefits over your lifetime make it a worthwhile endeavor.
Excellent Credit Opens Doors
Having excellent credit in the 750+ range can feel like the golden ticket when it comes to financing and loans. An exceptional score unlocks the most competitive interest rates and makes it easy to qualify for top-tier credit cards, mortgages, and low insurance premiums. Excellent credit saves you money while giving you increased financial flexibility and purchasing power.
While building excellent credit takes diligence and responsible money management, the payoff over your lifetime is massive. Monitoring your credit report regularly, limiting hard inquiries, keeping utilization low, and never missing payments are the keys to elite credit. Maintain these habits over time, and the doors of financial opportunity remain wide open.