How To Get A Perfect Credit Score?

A credit score of 800 points marks the threshold in which most people would consider it to be a perfect score.

Why Credit score is important?

Your credit score is just a report card of how well you handle your money. Like in school you do well in your exams and tests to get a good grade but in life, if you handle your money responsibly you get a good credit score.

Having a good credit score has a pretty practical purpose. It could save you a lot of money and even better, it can end up making you a lot of money.

Having a good credit score means you can get the lowest interest rate anytime you want to leverage your money in real estate, business, or just in life.

It’s also how you get approved for pretty much any credit card signup bonus you apply for. Which is just another way to get more free stuff.

So, I promise this post will save you or make you a few thousand dollars if you just follow it. It’s not going to take you a lot of time. It’s easy to do and won’t cost you any money out of pocket to get an 800 score.

So it’s entirely free to do, it’s just going to take a little bit of your time.

How the credit score system works?

First, in order to understand how you can get a perfect score, you need to understand how the system scores you in the first place.

Like I said, just like you have a class that grades you differently for homework, test assignments, and attendance; your credit score grades you on several different factors as well.

So, if you want a perfect score you have to do well on all of them.

1. On-Time payment History (35%)

This makes up 35% of your credit score. Just don’t miss a credit card payment and don’t pay it off late ever. In order to get a perfect credit score you’ll need to almost never miss a payment otherwise that could ruin everything.

Here’s how this works and how it’s calculated

The credit Gods look at all of your on-time payments and then divide that by your total payments. From that, they calculate what percentage you paid on time.

On-Time Payments / Total Payments = % Paid on Time

Example:

Let’s say you’ve had one credit card for 60 months and you end up missing one payment. That means they take 59 On-Time payments divide that by 60 total payments and you have a 98.3% payment ratio.

As you can see from the Credit Karma score calculator that puts you in the yellow which is not good. But that is unacceptable if you want to get a perfect score.

However, in a different example:

let’s say you’ve had two credit cards each for 60 months and you end up missing one payment.

Now, you have a total of 120 credit payments between two credit cards. This means that they take 119 on-time payments divide that by 120 total payments. So between the two cards, you paid 99.1% on time.

This puts you in the green category as far as credit karma is concerned which is a little bit better.

Let’s take one more example:

let’s just say you’re new to building your credit. You’ve had one credit card for 15 months and you end up missing one payment.

Well, the same calculation still applies. You have 14 on-time payments divide that by 15 total payments. That means you only paid 93.3% on time which is bad.

That also means you could prevent this from happening by not only always paying on time but also having more credit available to you for a longer period of time. So if you do miss a payment it would impact you a lot less.

Like having 10 credit cards for over 5 years would give you 600 total payments. So if you end up missing one this still means that you paid 99.8% on time. This is not the end of the world.

Now, when it comes to paying off a credit card on time the really good news with this is that for them to count it as an on-time payment you just have to make the minimum payment every single month. Which most of the time is just like $25 to $50 a month.

So even in the worst-case scenario. If you can’t afford to pay off your credit card in full just make the minimum payment on time every single month. That will help keep your score intact in this category.

2. Credit Utilization (30% of your score)

The second factor is known as the Credit Utilization. This makes up 30% of your score.

Now, in order to get a perfect score, the credit bureaus just want to see that you’re not maxing out all of your credit cards. They want to see that you’re only using a small percentage of the overall credit that you have available to you.

Ideally, you want to be spending under 10% of your total credit limit. Showing the almighty credit gods that you don’t need all the money they’ve given you because you’re that good with money.

If you’re confused here’s how this works and here’s how it’s calculated:

Let’s just say you have a credit card with a $10,000 limit. You go out there and spent $6,000. After that, you just make the minimum payment.

At that point, you do the calculation and you’re using 60% of the available credit that you have.

$6,000 / $10,000 = 60% Utilized

This puts you in the red category, which is bad.

From that, you’re seen as a riskier borrower because you’re carrying a higher balance. That makes the credit bureaus very angry and they’re going to lower your score.

On the other hand, if you had the same credit card with a $10,000 limit and you spend $6,000 BUT you paid it off in full when it’s due! That means you now owe $0 on the $10,000 credit line. This shows that you have 0% credit utilization which makes the credit bureaus very happy and gives you a green category.

There are some ways around this because it’s not the dollar amount that they care about; it’s the percentage of credit that you actually use.

So if you have a $300 credit line and you spend $300 that just means you’ve maxed out your card. You have a 100% credit utilization and that’s very bad.

But if you go and spend that same $300 although this time you have a $30,000 credit line; this would show that you only have a 1% credit utilization which is really good.

Have a lot of credit

Now, one of the techniques I use to help with this is just to have a lot of available credit with all really high limits. For instance, right now I have over 12 credit cards and many of them have over $30,000 credit lines.

I’m never actually going to spend that much money but it does help me in the instance where I spend $10,000 or more I can still show a very low credit utilization because I have so much credit already available to me.

Don’t keep a balance on a credit card

There’s a myth out there that suggests you should keep a small balance on your credit card at the end of every month; so that way the credit bureaus have something to report and this one is FALSE.

Keeping a balance on a credit card is not going to help improve your score. If anything now it’s going to cost you more money in interest. So it’s always better to pay it off in full by the time it’s due and never carry a balance on a credit card ever

Have a low utilization

So if you want to get a perfect credit score, it’s crucial that you try to keep a balance of 5% or less of your available credit. This doesn’t mean that you can’t go out there and spend more than 5% of your available credit but it does mean that you should pay it down before the statement cycle is over. So that way the credit bureaus have less money to report on.

In addition to that, it will help you to go and get more credit cards because that will help increase the total credit limit you have available to you which will decrease your overall credit utilization.

Get more credit

I recommend you ask for a limit increase every 6 to 12 months in your credit cards. This way you’re going to be constantly lowering your overall credit utilization and helping to improve your score. Just remember don’t go out there and spend more money because you have more credit available to you.

All of this should really be done as a tactic to help increase your credit score. So don’t go and buy things that you don’t need.

Finally, how much money you keep as a balance on a credit card is really only going to be temporary. This is one of those things that it’s only going to impact your credit score until you pay down your credit card and your score will end up going up afterward. So if you have a high utilization rate right now or in the short term it’s not the end of the world. Your credit score will readjust as soon as you pay it down.

3. The average length of credit history (15%)

This just means the sooner you start building your credit the better. This is one of the reasons I highly recommend people to build their credit as soon as they possibly can. Even if it means going and getting a credit card the day you turn 18. This will build the entire foundation of your credit history very early on.

Now, it’s very important to explain that this is calculated by the average length of your total credit history. Not the total length.

Let me explain:

Let’s say you’ve opened 1 credit card 4 years ago. That would mean your average credit history shows as 4 years.

But if you’ve opened that credit card 4 years ago and then you open another credit card today your average credit history would be reduced now to 2 years because it only takes the average.

The same also applies if you end up closing an old credit line because. Some people believe it’s a good idea just to close all the credit cards they don’t use anymore.

This could be really bad because once you close off an old credit card even though it will still show in your account for 7 to 10 years it could lower the average age of your accounts after that and you will have to wait even longer to build it back up.

Start to build your credit ASAP

So my recommendation is to start building your credit as soon as possible. Also, keep all of your accounts in good standing as long as possible. This is going to help you build a solid credit history. So when you apply for new credit it’s not going to impact your account as much. Since you have a lot of history already and because of all of that it’s going to reduce your score a lot less.

Just have Patience

When it comes to doing all of this the only thing you could do at this point is just wait. This part of building your credit just takes time. So don’t be impatient if you just got a credit card and made a few on-time payments and don’t yet have a 760 score.

Patience goes a long way with this one. Sometimes you just going to need to wait for this one out. In terms of how long you need to wait, according to the Credit Karma guide, they want you to have 9 years or more average credit history to get the best ranking.

4. Total credit lines (10%)

The 4th aspect of your credit score is how many lines of credit do you have open.

This is one of those things that you would think makes absolutely no sense. Like why would you go and reward someone for opening up more credit cards and taking out more loans!

Higher limit, Lower utilization.

The more credit you have the higher your credit limit will be. This means the lower your overall credit utilization is likely to be. This also means the higher the score you will have.

More on-time payments

By having more credit available you’re going to be able to show more on-time payments. This would help you to get closer to that perfect credit score.

Having a mix of credit (having a mortgage, Auto Loan, and a credit card) shows lenders that you can responsibly handle different types of debt.

All of this sounds like pretty backward thinking. A lot of it reminds me of the mindset of we’re only going to loan people money who don’t need money because they’re the most likely to pay it back and that by the way is very true.

Banks love lending you money when you don’t need it and as soon as you do need the money you’re seen as a higher risk because you need it. So really this is just something you need to play into. It’s how the system works.

According to Credit Karma, they want to see you with 21 lines of credit or more to have the perfect score. For most people, I have a feeling this is going to take you a very long time to build up to.

I personally wouldn’t stress too much it only makes up about 10% of your credit score. Although I would recommend you aim to diversify your credit profile over time because, long-term, it’ll help you get a perfect credit score.

5. The total amount of inquiries on your credit report (10%)

Here’s how this one works. Anytime you go to apply for new credit it’s reported to the credit bureaus and shows up on your report as what’s called A Hard Inquiry.

This helps lenders keep track of how many times you are going and asking for credit. Generally speaking, the more times you’re going and asking for credit the riskier you become as a borrower.

This is because lenders are worried that all of a sudden you’re applying for new credit cards and loans and they’re concerned that maybe something has happened that is causing you to do this.

They’re thinking why did you just get three credit cards and an auto-loan today! Are you running out of money!

This all seems worrisome to lenders. Therefore the more hard inquiries you have on your credit report the lower your score is generally going to be.

In addition to that, if you are getting new credit cards and new loans that is going to reduce your average credit length history which could end up further dropping your score as well. That’s why if you just opened up a credit card your score loses about 50 points.

Impacts the score for 1 year

The good news however is that all of this is really just a temporary thing. Hard inquiries only show on your report for the first 2 years and they only impact your score for the first 12 months.

Inquiries can be grouped together

The other good news with this is that if you’re shopping around for an auto loan or a mortgage and you need to run your credit multiple times with different lenders to get different rates the inquiries will be grouped together as one. Therefore, it’s only going to impact you as if you only ran your credit score once.

So that way you can go to 5 different lenders for a mortgage, have them all run your credit 5 times and it’s only going to count as you running it once. Of course, as long as you do it within a relatively short period of time within just a few weeks. This is to promote rate shopping for you as the customer without penalizing you with your credit score.

Also if you’re in the process of building up your credit it’s probably best you take out a lot of credits now while you still can so by the time you actually need a good credit score all of those hard inquiries will have dropped off your report anyway.

Some recommendation to get a perfect credit score

I recommend you check your credit score every few weeks using a service like Credit Karma or is Credit Sesame.
you could try a technique to increase your credit score known as Credit Piggybacking. This is where you become an authorized user on a credit card from someone who has a very expensive credit history. When you do that their credit history could report on your credit account as well and that might increase your credit score a lot in the short-term.

Finally, follow everything in this post and stay consistent with. It will end up helping you get a perfect credit score.

You should aim to keep your credit score between 760 and 780 and anything above that is just for bragging rights.

Thanks for your time

This was my approach to How To Get A Perfect Credit Score. I hope you liked it and if you did then I recommend you to join my newsletter I post about money management and how to make money online.

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