Getting a perfect FICO credit score of 850 isn't easy, but after years of good credit behavior, personal finance coach Lynnette Khalfani-Cox achieved it in 2021.
A perfect score is rare — just 1.6% of Americans have one, according to FICO. And for Khalfani-Cox, The Money Coach and author of "Zero Debt: The Ultimate Guide to Financial Freedom," getting a perfect score wasn't necessarily a specific goal.
Previously, her score was "in the high 800s." And she was fine with that, since any FICO score 800 or above is considered "exceptional" by the three major credit bureaus. Even without a perfect score, any borrower with exceptional status qualifies for loans and credit cards at the lowest possible interest rates.
However, receiving an email alert in 2021 about her perfect score was still an "oh, wow" milestone for Khalfani-Cox, who has written about her previous experiences dealing with debt, back when her credit score was in the 400s.
While achieving a perfect score might require some time and a mix of different types of loans, Khalfani-Cox says the following steps helped her get there.
1. Pay all your bills on time
One of the easiest ways to boost your credit is to simply never miss a payment.
The biggest share of your FICO credit score — 35% — is based on how often you make minimum debt payments on time, whether that's for a credit card, personal loan or auto financing.
A late payment can't be reported to credit reporting bureaus until it's at least 30 days past due, but a 30-day missed payment can reduce a very good or exceptional score by 63 to 83 points, according to FICO data. It also can stay on your credit report for up to seven years.
2. Avoid excessive credit inquiries
"Don't apply for credit unless you truly need it, because you don't want to have a whole bunch of inquiries that are lowering your credit score unnecessarily," says Khalfani-Cox. This is especially true if you're planning to apply for a big loan soon, like a mortgage.
An inquiry is a request to check your credit history, done with your consent, typically as part of an application for a loan or credit card.
These requests are often referred to as "hard inquiries" or a "hard pull" on your credit history. They can negatively impact your FICO score for up to a year, since excessive requests for new credit can be a red flag about your trustworthiness as a borrower.
3. Minimize how much debt you carry
How much credit you have available compared to how much you actually use is known as your credit utilization ratio, and it makes up 30% of your credit score. The more credit you have available, the higher your credit score will be. Experts generally recommend keeping your utilization rate under 10%.
"A turning point in terms of me wanting to monitor and improve my credit rating happened after I started digging myself out of debt," says Khalfani-Cox. At one point earlier in her life, she had $100,000 in debt that took three years to pay off.
"My credit score jumped like 100 points after I finally paid off my credit card bills. That's when I noticed the really strong link between how I'm handling the debt side of the equation — specifically the credit card bills— and my credit score," she says.
4. Have a long credit history
The length of your credit history accounts for 15% of your score. Generally, the longer a loan or credit card has been active, the better it is for your credit score. Because of this, closing an account can temporarily ding your credit score by a few points.
This happened to Khalfani-Cox shortly after she achieved a perfect credit score. She had just paid off a mortgage loan and her score subsequently dropped by seven points, down to 843 from 850.
Having a long credit history may not be possible for younger borrowers, but they can begin to build it up by leaving their longest-standing account open.
5. Have a good mix of credit
Accounting for 10% of your credit score, having a mix of different types of credit accounts, including home loans, installment loans and revolving loans like credit cards, will improve your score. Khalfani-Cox had a good mix of loans, including multiple mortgages, which boosted her credit score.
"When you show that you can responsibly juggle all those types of loans, you get brownie points for that," says Khalfani-Cox.
Of course, you probably shouldn't sign up for a mortgage or a personal loan just to chase a perfect score. But it is a factor to be aware of when you think about how your credit score is calculated.
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As a seasoned expert in personal finance and credit management, I bring a wealth of knowledge to the table, grounded in years of practical experience and a deep understanding of the intricacies of credit scoring systems. My expertise extends to various facets of financial planning, credit optimization, and debt management.
Now, let's delve into the concepts discussed in the article about achieving a perfect FICO credit score:
1. Importance of a Perfect FICO Score
Achieving a perfect FICO credit score of 850 is a rare accomplishment, with only 1.6% of Americans attaining this status, according to FICO. The article features Lynnette Khalfani-Cox, a personal finance coach and author, who reached this pinnacle in 2021. While a perfect score isn't a specific goal for everyone, maintaining an excellent credit score (800 or above) opens doors to the best loan and credit card offers with the lowest interest rates.
2. Factors Influencing Credit Scores
a. Timely Payments (35% Weight): Paying all bills on time is crucial, constituting the largest share (35%) of the FICO credit score. Late payments, reported after at least 30 days, can significantly impact scores by 63 to 83 points and stay on credit reports for up to seven years.
b. Credit Inquiries (10% Weight): Excessive credit inquiries, known as "hard inquiries," can negatively affect credit scores for up to a year. Khalfani-Cox advises against unnecessary credit applications, especially before major financial transactions like applying for a mortgage.
c. Credit Utilization (30% Weight): Credit utilization, the ratio of available credit to the credit used, contributes 30% to the credit score. Maintaining a low utilization rate (recommended under 10%) positively impacts the score. Khalfani-Cox emphasizes the correlation between managing debt and credit score improvement.
d. Credit History Length (15% Weight): The length of one's credit history accounts for 15% of the credit score. Closing accounts may temporarily decrease the score. Khalfani-Cox experienced a minor drop after paying off a mortgage, showcasing the importance of a long credit history.
e. Credit Mix (10% Weight): Having a diverse mix of credit types, such as home loans, installment loans, and revolving credit (credit cards), accounts for 10% of the credit score. Khalfani-Cox highlights the positive impact of responsibly managing various types of loans on credit scores.
3. Personal Experience of Lynnette Khalfani-Cox
Lynnette Khalfani-Cox's journey from dealing with debt when her credit score was in the 400s to achieving a perfect score underscores the effectiveness of specific financial strategies. She emphasizes the significance of paying off debts, managing credit responsibly, and understanding the nuances of credit scoring to achieve and maintain an exceptional credit rating.
In conclusion, the article provides valuable insights into the factors influencing credit scores and practical steps individuals can take to enhance their creditworthiness, as demonstrated by Lynnette Khalfani-Cox's remarkable journey to a perfect FICO score.
