Excellent Credit

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What Is Excellent Credit?

Two different scoring models are used to determine your creditworthiness: the FICO and VantageScore models. Let’s examine the scoring models and determine what constitutes excellent credit according to them.

Few people can reach and maintain a perfect credit score of 850, but over 21% of Americans do fall within the “Excellent” category. What that “Excellent” category is will depend on the scoring model that’s used and the credit bureau that’s pulling your score – Equifax, Experian, or TransUnion. There are two popular scoring models used in the USA, FICO and VantageScore. They both serve the same purpose – determining how creditworthy you are. Or, in other words, determining how likely you are to accumulate debts and be late on payments. Both FICO and VantageScore have the same credit score range, which goes from 300 to 850. However, there are a few differences in ranges for specific credit categories.

Not all lenders look into the same credit scoring model, so it’s a good idea to maintain both high FICO scores and high Vantage scores.

Factors That Impact Your Credit Score

To improve or maintain your credit score, it is essential to understand the steps involved. The factors that impact your credit score will tell you all you need to know about this.

You’ll often hear advice such as “pay your credit card debts on time”, “never miss a payment.” But why? Besides needing to pay extra interest or a late fee, is it such a bad thing to be late on a few credit card payments? It is. Being late on your payments won’t just cost you a little more money down the line; it will lower your credit score, impact your approval for other types of credit and loans, and make your credit cards more expensive. Your credit score is a complex equation that takes into account many different factors. And, of course, those factors depend on the credit scoring model used. Factors that impact your FICO score are as follows:

• Payment history accounts for 35% of the score
• Length of credit history accounts for 15% of the score
• Credit utilization rate accounts for 30% of the score
• New credit accounts for 10% of the score
• Credit mix accounts for 10% of the score

Factors that impact your Vantage score are as follows:

• Payment history accounts for 40% of the score
• Length of credit history and credit mix accounts for 21% of the score
• Credit utilization rate accounts for 20% of the score
• Debt accounts for 11% of the score
• Hard inquiries and recent credit behavior account for 5% of the score
• Available credit accounts for 3% of the score

Of course, your age, sex, marital status, race, religion, nationality, salary, and others have no impact on your credit score whatsoever.

Types of Credit Cards for Excellent Credit

There are many different credit cards used for various purposes. With an excellent credit score, you can essentially apply for any card that you want.

With excellent credit, the world is your oyster. You can easily apply for almost any type of card you’d like, and you’ll have a very high chance of being approved for it. This doesn’t mean that you can be negligent, however. You still need to pay close attention to the terms and conditions of your credit card, and you should compare and contrast different issuers to find the best offer. If you’re looking for your next credit card for excellent credit, these are the ones that would suit you best:

• No annual fee. Annual fees can make credit cards exceptionally costly. As a cardholder with an excellent credit score, you can easily find a no-annual-fee card and have some standard fees and charges waived. Some issuers will offer cards with no annual fees only for the first year of being a cardholder, while others will have no annual fees whatsoever for the duration of your credit card.
• Low-interest. Interest is charged on the amount of balance you carry from one month to the next. If you’re to maintain an excellent credit score, you’ll need to make sure that you always pay off your credit card debts on time and in full. But since you never know what life may bring, it can be convenient to have a low-interest credit card in case you miss a payment.
• No foreign transaction fee. If you’re a frequent traveler, you’ll greatly benefit from having a no-foreign-transaction-fee credit card. You’ll need a good credit score or higher to get approved for these cards, and they can come in quite helpful when you’re across the pond.
• Reward cards. As a cardholder with excellent credit, you’ll find it easy to qualify and get approved for some of the best rewards credit cards offered by issuers. When using such credit cards, you can receive great cashback rewards, travel rewards, shopping rewards, and more just by making everyday purchases.

5 Key Benefits of an Excellent Credit Score

What do you get from striving for an excellent credit score? Is it worth the dedication and hard work required to achieve it? Let’s see.

An excellent credit score shows lenders and credit card issuers that you are responsible for your money, and this is of utmost importance. Since credit cards are essentially loans from banks and issuers, they need some guarantee that you’ll pay them their money back. The best guarantee is your credit score. It shows your past credit behavior and serves as an indicator of how trustworthy, or better said, creditworthy, you are. And the more creditworthy you are, the bigger the financial benefits will be.

1. Lower Interest. Lenders and credit card issuers charge higher interest rates to those with lower credit scores to discourage them from missing payments. Since you’re a much less risky candidate for a loan, and you’re much more likely to pay your debts on time when you have an excellent credit score, there’s no real reason why you’d need high interest rates. Whether we’re talking about credit cards, car loans, home loans, or anything in between, you’ll find it much easier to get very low interest rates when you apply for a new line of credit.
2. Easier Loan Approval. An excellent credit score won’t guarantee that you’ll be approved for a loan, but it can be of great help. As previously mentioned, your previous credit history reflects your financial responsibility, and your excellent score demonstrates your creditworthiness.
3. Easier Apartment Approval. Increasingly, landlords today review their potential tenants’ credit scores before offering them a lease agreement. If you have a high credit score, you’ll find a place to rent without a hitch.
4. Better Insurance Rates. Insurance companies almost always take into account your credit score, among other things, when they’re developing your plan. You’ll receive lower insurance premiums and better overall terms and conditions for your insurance with an excellent credit score.
5. Higher Credit Card Limit. Your salary and credit score are the primary factors determining your credit card limit. With an excellent credit score, banks and issuers will allow you to borrow more money from them because your risk factor is lower, and you’ve already proven that you can responsibly pay back your debts. A higher credit card limit can come in quite handy when you’re making larger purchases.

The Bottom Line

It takes a lot of hard work to achieve an excellent credit score and a significant amount of effort to maintain it. But the benefits you receive from it are worth the dedication. Just remember, credit scores are fluid, and it’s much easier to damage them than to improve them. Once you’ve achieved an excellent credit score, ensure you maintain it by paying your debts on time and in full and being a responsible cardholder.

Frequently Asked Questions