KEY POINTS
- On average, they possess 5.8 credit cards, which is higher than the average consumer who has 3.9 cards.
- Their credit card debts are significantly lower, and there are no instances of late payments on their credit record.
- The majority of them are aged in their mid-40s or above, with 92% belonging to the baby boomer or Gen X generations.
According to recent research by Experian, under the commonly used FICO® Score system, the maximum achievable credit score is 850, with only 1.54% of Americans holding a flawless 850 credit score.
Having an excellent credit score is not mandatory, however, it offers numerous advantages. It may increase your chances of qualifying for credit cards that offer the greatest advantages , loans with low interest rates, and insurance rates that are even lower.
Experian’s study also examined the qualities of individuals in the United States who have an 850 credit score. Understanding the credit habits of this group may assist in enhancing your own credit. Here are four common characteristics they have.
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They possess a greater number of credit cards.
On average, consumers typically have 3.9 credit cards each. However, individuals with excellent credit usually have around 5.8 credit cards.
It may surprise you to learn that the number of credit cards you possess does not play a role in determining your credit score, despite the common misconception that having numerous credit cards can negatively impact your credit.
Holding multiple credit cards is not essential for maintaining a good credit score, however, it can provide financial advantages. People who prefer credit cards designed to offer benefits and rewards specifically for travelers Individuals who use cash back cards frequently apply for multiple cards to maximize their rewards. By doing so, they can take advantage of the welcome offers available to new cardholders, increasing their chances of earning bonuses.
One drawback is that it can be more challenging to handle several credit cards. However, this is typically not an issue for individuals with excellent credit scores.
They maintain low balances.
Despite having more credit cards, Americans with excellent credit tend to spend significantly less. The average balance on credit cards is $6,501, whereas for individuals with perfect credit, it is less than half of that amount at $3,028.
Consequently, these customers maintain significantly lower credit utilization rates. Credit utilization refers to the ratio of your credit card debts to your credit limits, and it plays a crucial role in determining your credit score. To illustrate, if your outstanding balances total $2,500 and your credit limits amount to $10,000, your credit utilization rate would be 25%.
The typical credit utilization rate is 29%, which is considered to be good. It is generally recommended to aim for a credit utilization below 30%. However, it is even more beneficial to have a lower percentage, as individuals with excellent credit typically maintain a credit utilization rate as low as 4%.
This is partly due to their reduced spending habits, but having multiple credit cards also plays a role. Owning several credit cards increases your total credit limit, thus lowering your credit utilization rate.
They have an impeccable record of making payments on time.
Your credit score is primarily influenced by your history of making payments. Timely payments on credit cards and loans have a positive impact on your credit score, while late payments can result in a significant decrease, possibly lowering your score by over 100 points.
On average, consumers have 1.5 accounts that have experienced delinquency in their credit history. In contrast, individuals with excellent credit have an average of zero delinquent accounts, indicating no missed payments at any point.
Late payments affect your credit score only if they are overdue by at least 30 days. Prior to that, the lender may apply a penalty for late payment, however, they are not allowed to mark the payment as overdue on your credit report. Being a bit delayed in making a payment will not negatively impact your credit score, as long as you make the payment before the 30-day deadline.
They are more advanced in age.
Two-thirds of individuals with excellent credit are from the baby boomer and older age groups, while a quarter are from Generation X. In total, those aged 45 and above make up 92% of those with perfect credit.
Along with your credit management, your credit score is influenced by the length of time you have been utilizing credit. It is not possible to achieve a perfect credit score within a year, even if you have been managing your credit responsibly. This is because your credit history needs to be established over a longer period of time.
If you are inexperienced with credit, it is important to be patient. Emphasize the importance of making timely payments and maintaining a low credit utilization. It is best to pay off your credit card balance completely to minimize your credit usage and prevent accruing interest fees. Although it may require some time, adhering to these practices will eventually result in a strong credit rating.
Developing and upholding a strong credit score is not a difficult task. The main elements that play a crucial role in this are how consistently you make payments, how much credit you use compared to your limit, and how long you have been using credit. Those who have perfect credit typically excel in all these aspects. Additionally, they often possess multiple credit cards, although this is probably for the perks rather than solely to enhance their credit scores.
