It's Time to Stop Obsessing Over a Perfect Credit Score

Dear Opening Credits,

I have no credit card debt that is not paid in full each month. I have several cards: two major cards and about eight store cards. Credit limits total about $25,000. I have no home loan and my utilities are paid in full each month. I also have never been foreclosed upon and have no bad debt history. So, why is my FICO score only 780? What can I do to boost it?

- Mary

Dear Mary,

Your situation is indeed frightful. All that available credit, no debt and a FICO score of "only" 780? No wonder you're worried!

Yes, I'm poking fun, but only because you're not appreciating what you've already achieved: considerable credit success. However, it appears that you want a perfect score instead of one that's merely fantastic. I'll tell you how you might be able to come closer, but I can't guarantee you'll hit the very top. Here's how and why.

As I'm sure you know, FICO scores span from a low of 300 up to 850. Higher numbers are preferable, as they indicate less lending risk to financial institutions. Exactly how they're calculated is a mystery, though. Detailed information about the mathematical model that is used to create your FICO score is proprietary. What is known are the weights given the five components of your FICO score. In order of importance, they are:

35% payment history
30% amounts owed
15% length of credit history
10% types of credit used
10% new credit

In short, as long as you're paying on time and in full, have a variety of long-standing active accounts, and keep your credit applications to a minimum, you should have great scores.

And yours are. A FICO score in the mid-700s and above is considered excellent. Combine that with a steady job and some assets, and you should be eligible for the most premium of financial products. You don't mention your position or net worth, but at the very least we know that your scores are very attractive to lenders. You got there by hitting the most crucial scoring factors.

So why are they short by 70 points? You have to remember that credit scores are a snapshot in time. Had you pulled your score at a different time the next month, it is possible it would have been in the 800s. Because you're charging with at least a few of the credit cards, perhaps one of the companies reported your balance midcycle, before you paid the debt off in full. That could have altered your score for a moment, but the following month they would have been higher. To offset this minor problem, you may want to pay your balance once a week or immediately after charging.

Also, you only have revolving credit accounts. An installment loan that you treat just as responsibly as your cards will indicate that you can handle that type of product, too. This doesn't mean you ought to go out and finance a vehicle just to prove that you can make such payments. That would be silly. But if you had a loan in addition to the cards, you could see a little upward difference in the digits.

Mind that household bills such as rent and gas are not listed on a credit report, so they typically are not included in a score. It's good that you've kept them all in good standing, though, because if you didn't, the delinquent accounts might be sold to collection agencies. Then your reports and scores would be hurt.

If you are trying for more credit, go easy. An excess of applications will temporarily drive your scores down a little.

Your FICO scores should continue to rise with your current credit habits and with the little tweaks I suggested. In the meantime, please stop and congratulate yourself on a job well done.