For a few precious weeks last year, I had perfect credit.
Sometime over the summer, I clicked on one of those credit update links, signed in and beheld the magical digits: 850.
I had never had perfect credit before, and I may never have it again. A month or two later, my score dropped back into the 820 range: exceptional, but not perfect.
Perfect credit, and even “exceptional” credit, opens doors for American consumers: Lower interest rates on loans. Better odds of renting an apartment or landing a job. Lower insurance premiums.
Roughly 1.8% of Americans have a perfect FICO credit score, The Motley Fool reports. People with perfect credit tend to be older, like me. Many of them live in Minnesota.
My journey to perfect credit is noteworthy, if only because I went through most of my adult life as a poster boy for imperfect credit.
I entered my professional career earning $17,000 a year, with five figures of student debt and no assets more valuable than pizza coupons.
By age 40, I had retirement savings. The student loans were gone. My wife and I owned a home. But now I had five figures of credit card debt. The balance rose every year.
I finally quit the credit card habit. I spent my fifth decade paying the cards down. My credit score gradually rose.
In 2022, I started writing about personal finance. I practiced what I preached: Saving more, borrowing less and moving my remaining debt onto zero-interest credit cards. (Yes: Credit cards can also help you.)
I remember the day my credit score hit 777. The rest of my journey to perfect credit came in baby steps. To retell it, I’ll break down the components of a credit score.
There are lots of credit scores. For simplicity, I’ll focus on the familiar FICO Score.
Payment History: 35%
The most important factor in your credit score “is as simple as paying your bills on time, and as agreed,” said Jenelle Dito, vice president of consumer empowerment programs and partnerships at FICO.
Missing a payment by even a day or two can trigger late fees and other bad things.
But a late payment “usually doesn’t get reported to the credit bureaus until after 30 days,” said Courtney Alev, a consumer financial advocate at Intuit Credit Karma.
When that happens, it’s a big deal.
“The reality is that one missed payment, one late payment can ding your credit score in a meaningful way,” Alev said.
If you do miss a payment, “you still want to pay it as quickly as you can,” Alev said. If a payment slips from 30 days to 60 or 90 days late, your credit score can drop accordingly.
An easy way to avoid missed payments is to put them on autopay. Another is to set alerts and reminders. Often, you can do all those things on the website where you pay the bill.
For me, keeping up with bills was never a huge problem. In recent years, however, I’ve moved my smaller bills to autopay.
I’m scared of automating the big ones, because of the seesawing balance in my checking account. Instead, I list all my monthly bills in a Google Drive file and mark them off when they’re paid: crude but effective.
Amounts Owed: 30%
This is the second-biggest factor in a credit score. It measures your credit utilization: The amount of your available credit you use.
If you have $100,000 in available credit on your cards and credit lines, and you have a combined balance of $50,000 on those accounts, you are using 50% of your credit.
You’ll often hear that a good goal is to keep your credit utilization below 30%.
“But the reality is, if you want to have perfect credit, you’ll want to have it below 10%, or even below 5,” Alev said.
Dito, of FICO, says 30% might be a useful motivational target, but the figure has no special meaning in the credit-score universe.
“There’s nothing magical that happens at 30%,” she said. “The guidance we try to give is, lower is better.”
There are several ways to lower your credit utilization. One is to pay down your lines of credit.
Others are less obvious. For example: If you pay off a credit card, you might be tempted to close it. But if you keep it open, that unused credit can boost your score. (And your credit history: See below.)
As I paid down my own credit lines, my credit score inched upward. A few years ago, I started keeping old credit cards open.
To keep an account open, it helps to make occasional charges. I have three now, each covering a different monthly subscription, all set on autopay.
Length of Credit History: 15%
This FICO factor is self-explanatory. Credit agencies reward you for a history of creditworthiness.
“The earlier you start to show up in the credit bureau’s database, the better,” said Cynthia Chen, CEO of Kikoff, a company that helps consumers build credit.
It might seem counterintuitive, but you don’t start life with perfect credit. To attain it, you need a credit history. The system “favors people who start building credit early,” Chen said.
It also favors the old. That’s one reason I have good credit.
New Credit: 10%
This FICO component works mostly in the negative. Every time you take out a new car loan or credit card, you take on new credit.
A new account here or there isn’t a big deal. But “if you have recently opened a bunch of credit cards, that can be seen as a yellow flag to lenders,” Alev said.
With new credit, timing matters.
“Let’s say you were planning to buy a house in the next couple of months,” said Sara Rathner, credit cards expert at NerdWallet. “You’ll probably want to hold off on applying for new credit cards.”
When you apply for new credit and the creditor pulls your file, that’s a “hard inquiry.” It can ding your credit score — and your ability to qualify for that mortgage.
My own mantra nowadays is “never borrow.” And, apart from a car loan in 2021, I’ve lived by it. I open new zero-interest cards every few years, but only to pay down debt I already owe.
Credit Mix: 10%
This metric looks at your ability to handle different types of credit.
A credit card is considered “revolving” credit, allowing you to borrow, repay and borrow again. A mortgage is “installment” credit, a fixed sum repaid in regular payments over a set period.
It’s good to have both.
How Did I Get a Perfect Credit Score?
Looking back on my own credit journey, I can clearly see my pathway to perfect credit.
At the moment my score hit 850, I had a strong payment history. My credit utilization was as low as it had ever been. My credit history was long and getting longer. I wasn’t taking on new credit, and my credit mix included both installment and revolving loans.
How did I lose my perfect credit?
That’s harder to say. Credit scores are fickle. And the credit gods may have punished me for doing the right thing.
Around the time my credit score flirted with perfection, I opened a new zero-interest credit card and loaded it with debt from an old home equity loan. That move saved me hundreds of dollars in interest. But it was also new credit, and a hit on my credit utilization rate.
As I sit here today, my FICO score is 818: Not perfect, but good enough.
This article originally appeared on USA TODAY: I had a perfect credit score. Here’s how I got it.
Reporting by Daniel de Visé, USA TODAY / USA TODAY
USA TODAY Network via Reuters Connect
