Highest Credit Score Possible

A number of people who are laden with debt have filed for bankruptcy on account of the inability to discharge their obligations. Foreclosures have also become rampant since homeowners are finding it increasingly difficult to repay the mortgage loan despite the government implementing a number of programs to stop foreclosures. Both bankruptcy and foreclosure result in the credit score of the borrower declining by as much as 350 to 400 points. Lack of jobs has caused erstwhile students to default on student loans again lowering the defaulters' credit score.

A financial crisis always has the effect of bringing to the forefront the value of economic prudence and the importance of good credit. In the current scenario, when bankruptcies and foreclosures have become the order of the day, credit scores have started assuming more importance than ever.

The Highest Credit Score Possible

What's the highest credit score possible? This question often plagued people who desired to attain perfection as far as their financial records were concerned. Today, given the state of economy, when lenders are more reluctant than ever to advance loans to people with less than satisfactory credit, the significance of this question has dawned on many others.

Since FICO scores have become synonymous with credit scores, and FICO scores range between 300 and 850, the highest credit score that is possible is 850. In reality, very few people have this perfect score. The range where your credit score figures is considered an invincible factor in order to sanction your interest margins when you plan and apply to buy a car, home or finance to start your own business. It is when you apply for loans, that the bank determines how consistent you are in paying the debts. It is thus indication of the degree to which the lender incurs the risk of lending the amount for you to fulfill your need. Maintaining a decent credit rate puts you in better stead, as banks may not have any relative issues in passing your loan appeal thereby also providing you with a lower rate of interest.

What Constitutes a Credit Score

The knowledge of how the credit score components are calculated, having a percentile attached, or what rules are followed while declaring the score as a complete 100% is, and perhaps would remain a well-kept secret with FICO. However, it is possible for us to understand as to what the components are, based on which the score is calculated.

Payment History
This component constitutes 35% of the total credit score. Simply put, it determines your efficiency in paying your bills in the past. If you have had a credible payment history, your score will be positive and affirmative.

Utilization Ratio
This being 30%, is a component that deals with the ratio between the total available credit and the credit that you use. If you want that your credit scores be high, your credit card must display a higher retaining ability than your usage ability. This way, you also show that you have no issues with the pay-back policies as you are not financially burdened.

Length of Credit History
This component shares its identity with that of payment history. Possessing 15% of the total credit score, it calculates the period of your credit card usage and heavily depends on how regular you have been in paying your bills.

New Credit
Comprising 10% of the total credit score limit, new credit is an intelligent tactic to manage and restore your credit, however opening one or more new accounts for yourself can impact your score temporarily.

Types of Credit Used
The remaining 10% of your credit score dictates the type of credit you used. It is always advisable for one to use a mix of installment and revolving credit, with keeping the utilization of revolving credit under the 10% limit.

Does it Help to Have the Highest Credit Score?

Having a high credit score is definitely good. However, the highest credit score does not guarantee people of receiving exclusive benefits that people with credit scores in the higher end of the credit range cannot hope to receive. In other words, as long as a person's credit score lies in the higher end of the credit score range and he/she is classified as a prime borrower, the person can hope to receive all the advantages that people with a FICO score of 850 can avail. Considering this, the following discussion on the advantages of a high credit score assumes relevance.

Advantages of a High Credit Score

Low Interest Rate: In the current scenario, people with credit scores in the range of 780 and 850 are classified as prime, and they can hope to procure a loan at a relatively low rate of interest as compared to people with lower credit scores. Again, a borrower with a credit score of 780 will have to discharge a loan that bears the same rate of interest as a borrower with a credit score of 800 or 850. This is because both credit scores lie in the prime range. Borrowers with credit scores less than 780 will face less favorable terms, while borrowers with credit scores less than 620 may find it difficult, if not impossible, to procure a loan in the current scenario.

Insurance: People who need homeowners insurance and auto insurance need to have good credit scores since the chances of being covered (insured) depend on the borrowers having good credit scores. The credit score of a person also determines the premium that is charged on insurance. This is because lenders have noticed a distinct negative correlation between credit scores and the claims filed.

Job Offers: There is a connection between credit scores and job offers as well, since a high credit score indicates the ability to 'manage' finances. Many employers feel that it is a reflection of a person's ability to 'manage a job' that requires them to shoulder responsibilities.

These advantages, and many more, can accrue to a person with high credit scores. Attaining the highest credit score possible is definitely admirable, but from the practical perspective a person can get the best deal as long as he/she is a prime borrower.