Definition of Excellent Credit
How Excellent Credit Works
Benefits of Excellent Credit
How to Obtain Excellent Credit
Definition of Excellent Credit
Excellent credit refers to a credit score in the “Exceptional” or “Excellent” range in the credit scoring model used to calculate it. In FICO 8 from Fair Isaac Corporation, the latest version of the FICO model used in 90% of lending decisions, a score from 800 to 850 is considered “Exceptional.” On the VantageScore 3.0 scale, an excellent credit score ranges from 781 to 850.
Excellent credit scores are far above the average credit scores of consumers in the United States, telling lenders that the borrower has a very low risk of defaulting.
How Excellent Credit Works
A credit score is a three-digit number calculated using information found in credit reports created and maintained by the three major credit bureaus in the United States: Equifax, Experian, and TransUnion. These reports are regularly updated records of your borrowing history, including how much debt you carry and whether you have repaid previous debts on time.
When you apply for credit, whether it’s a credit card or a loan, banks and other lenders consider your credit score along with other factors to assess the risk of defaulting or being late on payments and to determine the likelihood that you will repay them on time. The higher the credit score, the better, as consumers with excellent credit are viewed as lower risk and the most trustworthy borrowers. Therefore, borrowers with excellent credit are most likely to obtain the best credit cards or loans at the lowest annual percentage rates (APRs), which can save them hundreds or thousands of dollars over the life of the loan.
Benefits of Excellent Credit
Most people know that excellent credit comes with tremendous benefits but may not be sure what they are. Benefits of excellent credit include:
- Higher Approval Chances: An excellent credit score makes it easier to obtain a credit card, car loan, or mortgage, as well as rent an apartment or obtain a mobile phone plan.
- Lower Interest Rates: You will also receive the best terms, such as the lowest interest rates available (including refinancing rates) that reduce borrowing costs and often lower monthly payments.
- Access to Better Credit Card Rewards: Consumers with excellent credit qualify for credit cards that offer generous rewards (cash back, for example).
- Better Terms: Those with excellent credit may have lower mortgage payments and higher credit limits that give them greater purchasing power.
It is advised that excellent credit gives you the best chance for approval, but you can still be denied if lenders decide you have too much debt or not enough income. Similarly, good credit qualifies you for many of the same opportunities available to those with excellent credit (for example, the best credit cards are generally also available to those with good credit), although the lowest interest rates and most attractive terms are often reserved for those with excellent credit.
How to Obtain Excellent Credit
Follow these steps to achieve an excellent credit score:
- Borrow Money: Credit scoring is based on a history of responsible borrowing; establish a pattern of borrowing by opening credit cards or other accounts.
- Make Payments on Time: Payment history is the most important factor in credit scoring for both FICO and VantageScore, so get into the habit of paying debts on time.
- Keep
- Keep your balances low: The debt you carry relative to your credit limits significantly impacts your FICO and VantageScore. Therefore, avoid maxing out your credit cards, and slowly paying down balances can affect your ability to achieve excellent credit. Try to keep your credit utilization ratio at 30% or lower; this practice also helps keep your financing charges manageable.
- Keep your old accounts open and active: This helps lengthen your credit history and improves the average age of your accounts, both of which are factors that influence your score. Avoid applying for new credit too frequently: While having open credit accounts is important for your score, new inquiries into your credit report can temporarily affect your rating, and adding new accounts can lower your average age, which can also impact your score.
Achieving excellent credit requires patience and discipline. Once achieved, there is no lifetime guarantee. Late payments, high balances, or even collections on other types of bills can harm your standing. Maintain healthy financial habits to keep your excellent credit score and all the benefits that come with it.
Source: https://www.thebalancemoney.com/what-is-excellent-credit-4771249
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