“I Always Pay My Bills on Time! Why Don’t I Have a Perfect Credit Score?”

This article originally appeared in the September 2014 issue of VantageScore Solutions’ monthly newsletter, The Score. Subscribe here.

By John Ulzheimer, Nationally Recognized Credit Expert

It’s a question that comes up often in credit-scoring discussions with consumers – including some consumers who are also financial-industry pros. “I’ve never missed a payment in my life, so I have perfect credit and I should have a perfect credit score, right?”

The question seems logical enough. If you have a perfect track record of making payments on time, it seems safe to assume you’ll have a perfect credit score. What’s critical to understand, however, is that credit scoring models consider more than just your payment history when calculating your credit scores. They consider a wide range of data elements from your credit reports, all of which have proven over time to be reliable predictors of credit risk. Along with your payment history, factors such as your total debt, the age of your credit files, your credit-shopping practices, and your depth of credit all contribute to your credit scores.

When you look solely at the payment history metrics from your credit report, it’s likely that they’re only responsible for around 30 to 40 percent of the points in your credit score.  That means how you pay your bills is important, but not as important as performing well across all scoring categories. In fact, it’s entirely possible to have never missed a payment in your life and still have below average credit scores.

The formula for earning and maintaining a solid credit score is actually quite simple.

  • Make all of your payments on time, always.
  • Maintain low amounts of credit card debt relative to your credit limits – VantageScore Solutions recommends keeping your usage at or below 30 percent of the limit, on all accounts overall, and on each individual account.
  • Apply for credit sparingly.

If you can do these three things, then you’re going to have fantastic scores and will likely qualify for the best deals any lender has to offer.

Another thing to keep in mind is that you don’t need a perfect 850 VantageScore credit score in order to qualify for credit. Many lenders consider anyone with scores above 750 as being almost completely void of credit risk. There’s little incremental value in having an 850 over having a 750, as you’re likely going to get the best treatment in either scenario.

However, if you insist on maxing out your credit scores, there are always opportunities for incremental score improvements. To learn what those are for you, look to the explanations that accompany credit score reports (from both lenders and free score providers). These explanations, known as reason codes or score factors, are tied to the specific circumstances that prevent your credit score from being higher than it is. Even if your score is a very high one, these codes will clearly list the top reasons why it isn’t higher. You can learn more about reason codes, and how to use them to improve your credit score, at the ReasonCode.org website.)

If you have high scores, there’s no reason to change your credit management practices just to earn a few more score points. But, if you are going to try to continue to move your way towards 850 then addressing the issues identified by the reason codes is your best bet. Just keep in mind that it’s harder to improve scores that are already very high, and making a mistake can actually cause your scores to go down rather than up.

VantageScore Solutions is the NAFCU Services Preferred Partner for Credit Scoring. More educational resources and contact information are available at www.nafcu.org/VantageScore.