Singletary: No, you don’t need a perfect 850 score to be an exceptional borrower
By Michelle Singletary
Published: July 18, 2018, 6:00am
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I have been told many times that I’m a perfectionist, but I feel that I’m not perfect enough for such a label.
Yet it’s true that my life is driven by a relentless report-card-like quest for excellence. This is why I understand people with super-high FICO credit scores who seethe that they have yet to get a perfect 850.
I should note that, depending on the scoring model, scores generally range from 300 to 850. FICO also creates industry-specific scores that allow a deep dive into the numbers to determine a borrower’s credit risk, and these scores can range from 250 to 900, according to Ethan Dornhelm, vice president of scores and predictive analytics at FICO.
But for the free scores given to consumers by many lenders, perfection is typically 850. After writing recently that I had finally hit that mark, I was inundated with emails from fellow perfectionists wondering what they were doing wrong. I could see their obsessive torment from their words.
“Congratulations on having a perfect credit score — if you want to keep it, don’t pay off your mortgage,” wrote Lacy Lusk from Virginia. “My wife and I paid off our mortgage in 2016 and (my) score dropped from 850 to 822 and has stayed there. I guess paying a mortgage payment on time for 45 years does not count for anything.”
Actually, the biggest factor affecting your score is on-time payments. It counts big time in your favor. And an 822 score is superb.
Dornhelm and I talked about the angst a lot of high scorers have about their inability to reach the credit-score summit, and I asked him to address a few issues that kept coming up.
• My score is over 800, and there is no way to increase it without taking out a loan, which I don’t need or want. Do I have to take out loans to get a perfect 850?
Our analysis of millions of credit records finds that those consumers who are actively managing multiple types of credit products are slightly less risky borrowers than those who have only one kind of credit product or no active loans at all.
It is possible to get a very high score with only one type of credit product being used, a score high enough to qualify for practically any credit product at the best terms. But if you’re seeking a perfect FICO score, you’ll need to be perfect on all dimensions considered by the score, including credit mix.
• Would failing to pay the full balance on the due date help me get a perfect score?
This is one of the biggest misconceptions I hear about the FICO score. Paying less than the full balance on your credit card and incurring interest charges absolutely does not help your score. The FICO score does not consider information that would indicate whether you are carrying a balance on your card (e.g. not paying off your credit-card balances in full) every month. The credit-report data fed into the score calculation only includes the monthly balances reported by each lender on that consumer. What matters with regards to the “amounts owed” category is that you are keeping your balances relatively low, especially in comparison to your credit limits.
• Does it matter how much you spend on your credit card each month if you pay your balance in full every time?
The balance found in the credit report is indeed whatever the credit issuer reported to the credit bureaus for that month. It often is the consumer’s monthly statement balance. So keeping your monthly statement balances low relative to your total credit limits will help your FICO score. On the other hand, if you’re maxing out your credit card each month, then even if you’re paying it off in full, the fact that you’re coming so close to using up all of your available credit is a risk indicator that will be considered by the score.
If I could pay off my mortgage tomorrow, I’d happily do it with no regard to my credit score. Once you get close to the top levels of any scoring model you are considered an exceptional borrower.
Perfectionists: Stop worrying and fussing about not reaching the top. Keep in mind a credit score is just one factor a lender considers. Even a high score can result in a credit denial if there are other mitigating factors in your risk profile.
But generally, once you’re within a hundred-point range of the top score, you’re exceptional. There’s no extra perk to being perfect.
Michelle Singletary welcomes comments and column ideas. Reach her in care of The Washington Post, 1150 15th St. N.W., Washington, DC 20071; or singletarym@washpost.com.
