The Overachiever’s Guide to Getting a Perfect Credit Score
Three little digits. One big number.
What’s the deal with 850? Well, if you’re a credit score aficionado like we are, you’ll recognize 850 as the absolute perfect credit score. Once you’ve hit it, there’s just no higher to go—you’ve made it.
And it’s an especially important figure for small business owners on the prowl for business financing. Out of all your financial numbers, documents, and sheets, your credit score might just be one of the most important attributes out there. It can make or break the loans you’ll qualify for, how expensive they are, who you can get them from—and more.
Since your credit is such a big deal, we’ve decided to build the biggest, baddest, most kickassest guide to achieving that perfect credit score.
850, here we come.
Quick(ish) Review: What’s a Credit Score?
Let’s take a quick step back and make sure we’re on the same page—what exactly is a credit score?
There’s a lot more to credit reporting than most people know. We don’t have to dive into the nitty-gritty of the credit score industry right now, but let’s talk some basics.
Your credit score is, fundamentally, a measurement of your reliability when it comes to your history of financial obligations. In other words, that score shows whether you pay back what you owe on time—or whether you don’t.
We’ll get more into why exactly that matters, but first let’s take a peek at a few different kinds of credit scores that matter to small business owners.
1. PERSONAL CREDIT SCORE
Whether or not you own a small business, your credit score is a pretty important figure in your life. It affects—and gets affected by—your personal loans, automobile loans, mortgages, student loans… Not to mention your personal credit cards.
Your personal credit score is a big deal for your personal life, but it also has a serious impact on your business finances, too. Lenders tend to assume that a small business owner’s personal financial habits will more or less match up with their business habits—and why not? If you make late payments on your personal credit card, isn’t it fair to assume you’d be late with a business credit card, too?
There are three main credit bureaus that monitor your personal credit: TransUnion, Equifax, and Experian. You’re entitled to one free credit report from each every year—and you’d hope that they report the same score for you, but that’s not necessarily always the case.
Personal credit scores range from 300 to 850 and are often also called FICO scores—though as we’ll discuss in a bit, FICO actually isn’t the same as your personal credit.
Here’s the general score breakdown:
2. BUSINESS CREDIT SCORE
You’ve also got a business credit score. This is something you actively have to begin and cultivate—by taking out a business loan, making payments on a business credit card, and so on.
Splitting up your personal and business financials is a smart move, as we’ll talk more about later, but for now just know that it’s not all personal credit or bust. Your business itself can be a trustworthy borrower… Or not. And as you grow, your business credit becomes more and more important, so think about your business credit early and often.
When it comes to the credit bureaus for business credit, two out of the three are the same: Equifax and Experian. Instead of TransUnion, however, Dun & Bradstreet will also be monitoring your business’s repayments, debts, and obligations.
Business credit works on a similar scale, so once again, aiming for that perfect credit score of 850 is the name of the game.
3. OTHER CREDIT SCORES
You might be thinking, “What can there be besides ‘personal’ and ‘business’? Isn’t that everything?”
You’d be right… Sort of.
There’s also the FICO SBSS, or Small Business Scoring Service, which mixes your personal and business credit scores together in a specific way to help out small business lenders especially.
FICO, by the way, is the company behind credit scores. Originally called Fair, Isaac & Corporation, FICO paved the way for credit scores as the standard for plenty of industries, including lending.
FICO’s Multiple Versions
Every so often, FICO releases a new version of its score—a new algorithm that weighs different factors depending on recent trends and tested results. But that doesn’t mean everyone starts paying attention to that update right away, or even agrees that it’s better than those tried-and-true older versions.
The result is that there’s a variety of FICO scores out there, like FICO 8 and FICO 9, that calculate your credit score differently. Which score a lender uses is beyond your control, unfortunately.
Industry-Specific FICO Scores
There are also industry-specific FICO scores, like the BankCard score for credit card lenders or the Auto Score for car loans. If you’re working with a highly specialized lender, you might want to ask whether they’re using a standard FICO score or an industry-specific one.
Non-FICO Credit Scores
There are some competitors to FICO, but they’re nowhere near as popular.
VantageScore, for example, is the result of credit bureaus getting together in 2006 to wrestle with FICO’s monopoly on credit scoring. These credit bureaus sell their own scores, too.
There are also a few more: the Credit Optics Score, the PRBC Score, and the ChexSystems Score, among others.
WHAT GOES INTO A CREDIT SCORE?
We don’t know exactly what goes into each credit score algorithm—that would be like FICO giving away its secret formula—but we do know what general factors come into play.
Some likely ingredients of your credit score are:
And in terms of business credit, you can also add in the following factors:
If you’re aiming to nab that perfect credit score, understanding how your financial decisions can impact your report will definitely help.
WHY DOES YOUR CREDIT SCORE MATTER?
Lenders care—a lot—about your credit. And if you’re aiming for that lofty goal of a perfect credit score, you should know why it matters so much.
As we’ve mentioned, your credit score is a pretty basic way to understand how reliable (or unreliable) you are as a borrower. The more financially responsible you are, the higher your credit score is: that’s how lenders view it.
“Reliable” is a bit of a vague measurement, so hopefully the previous section cleared things up a little. When lenders are looking for financial responsibility, what they really want to see is that you repay the debts you owe, don’t take out too many credit accounts or overburden your income with debt, avoid tax liens and other legal mishaps, and generally show that you’ll pay them back if they lend you money.
And that’s the crux of why credit scores matter to lenders: the last thing a lender wants to do is loan out money to someone who won’t pay them back. Your credit score is a shortcut for the lender: will you, based on past performance, pay back what you owe? By reaching that perfect credit score—or trying to, at least—you can show a lender that you’re worth trusting with their money.
Getting the Perfect Credit Score: What to Do
Now that we’ve got our review out of the way, let’s look forward—to how you can finally nab that perfect credit score.
Keep in mind that there’s no one trick or secret technique to perfecting your credit. It’s all about hard work, dedication, mindfulness, and patience. There are no real shortcuts—just smart and thoughtful financial decisions.
We’ll start with what you should be doing to improve.
1. PAY YOUR BILLS ON TIME, IN FULL
This might seem obvious, but late payments is one of the easiest ways you can hurt your credit score. It’s also one of the simplest ways you can improve.
Lenders are letting you borrow their money, and they want to be paid back on time. The more late payments you make, the lower your credit score will get, and the less likely it is that a lender will trust you with that business capital. A borrower with a perfect credit score doesn’t make late payments—and you can tell by their 850, because a single late payment can knock your score down up to 100 points if you’re doing well!
Try setting up automatic deposits with your lenders or credit card issuers so you don’t risk forgetting to make those payments. If you’re uncomfortable using a system like that, make sure to be extra diligent with your repayments: plan out your calendar, make a habit of checking it often, and keep reserves in your bank accounts so you don’t risk a missed deadline.
If you were forced to make a late payment but it was pretty uncharacteristic—like an unexpected emergency emptied out your coffers—then try calling your lender to ask for a good faith removal. Getting that late payment scrubbed from your credit card isn’t something your lender has to do, but if you explain the circumstances and show that they really were one-of-a-kind, you might convince them.
2. DON’T DEFAULT!
Defaulting on a loan is another way to seriously damage your credit score—but unfortunately, people rarely choose to default.
If you’re forced to abandon that debt obligation and default on your loan, your credit score might not be at the top of your mind. However, you should be aware that a substantially lower credit score will hurt your chances of getting another loan or credit card in the future, making capital even more expensive after you default.
Of course, you might just not have any other option. But if there’s a possibility you might borrow from a friend or family to repay a lender, or tap into another source of funds you’ve kept separate, it might be worth considering. That perfect credit score isn’t easy to attain if you’re climbing back from a loan default.
3. WATCH YOUR CREDIT UTILIZATION…
You might think that having a credit card limit of $4,000 means you’ve got all that cash to spend when you need it, but maxing out a line of credit could actually hurt your credit score.
Your credit utilization measures how much of your available credit you actually use. Are you the type of person who spends everything they’ve got, not thinking about the future? Or are you the type who spends conservatively, saving money and only using a credit card when you need one?
Guess which kind of borrower a lender prefers.
That’s right: the second. By keeping your credit utilization down, you’re showing off those habits of responsible borrowing and financial prudence. Prove you’re not taking on more than you can handle. It’s generally recommended to keep your utilization under 30%—or 20% if you can manage it.
However, that doesn’t mean you should aim for 0% utilization, since that can hurt your credit score, too. If you’ve got old credit cards, dust them off once in awhile and buy a coffee every month, just to keep that utilization going.
4. …AND YOUR DEBT-TO-INCOME RATIO
Unlike with credit utilization, your debt-to-income ratio doesn’t have a direct impact on your credit. You can get a perfect credit score with a high or a low ratio.
Why include it here, then?
Well, we figure that while you’re thinking about all of these credit factors, it’s good to remind yourself how your current credit can affect your eligibility for new credit options beyond just the credit score.
You might have a perfect credit score, never making late payments or maintaining a too-high utilization… But if your debt comes too close to your income level, a lender might get nervous of tipping the scales. So while you’re fine-tuning your financials to go after the perfect credit score, make sure to keep an eye on your debt-to-income ratio, too.
5. CHECK THOSE CREDIT REPORTS
Remember those credit reports we mentioned not too long ago? How you’re entitled to one free report, per bureau, per year? And how they’re sometimes incorrect?
Reaching that perfect credit score means you’ll have to monitor your credit reports pretty closely and correct any errors, omissions, or mistakes you find. They might be innocuous, but if a credit bureau accidentally adds someone else’s bankruptcy onto your report and your credit score plummets, you could be in a bad position.
It’s better to check up on them regularly and make sure there’s nothing glaring that needs to get fixed. We recommend using AnnualCreditReport, which gets you all three free annual reports. If you decide to go a different route, just beware of copycats—if they ask for your credit card information, you’re on the wrong site!
As many as 25% of credit reports contain errors, but that doesn’t mean you’re stuck without recourse if you find one on yours. Keep an eye out for:
That last one is big, since the length of your credit history is a hugely important factor of your credit score. If you’re aiming for a perfect credit score, don’t let these mistakes slip by unnoticed.
Plus, credit bureaus are obliged to investigate if you report a dispute. You’ll want to show documentation proving what you’re contesting, but at the very least, the bureau will look into the issue on their own.
6. BECOME AN AUTHORIZED USER
This one is sort of a shortcut, but it comes with its own challenges.
If a family member or friend trusts you enough with their credit card, you could try becoming an authorized user on their account. This is a great and simple way to increase your debt-to-credit ratio—or lower your overall credit utilization, in other words—without having to take a credit check.
As we’ll discuss in the next section, allowing for too many credit checks can be bad news for your credit score, so it might be a smart move to avoid that inquiry while getting the benefit of extra credit.
Like we said, though, this takes a particularly trusting family member or friend willing to put their own credit on the line to help you rebuild yours.
7. SEPARATE PERSONAL AND BUSINESS CREDIT
This one, on the other hand, is not a shortcut. Instead, it’ll take a lot of time and effort, but it’s worth your energy.
Lenders often judge small business owners on their personal credit, since plenty own businesses too new to have any substantial business credit. By separating out your personal and business finances, you’re protecting that perfect credit score from business downturns you might experience. At the same time, you’re shielding your business credit from any personal mishaps.
8. HOLD ON TIGHT
Finally, just keep holding on—your credit score won’t shoot up in a day. These are all best practices and worthwhile pieces of advice to follow, not one-and-done action items to check off your to-do list.
Don’t lose steam or let things slip, though: one missed payment could erase all your hard work in an instant. If you want a perfect credit score, you have to be mindful and attentive to your finances.
Getting the Perfect Credit Score: What Not to Do
That should go a long way to helping you get the perfect credit score—but there are a few pitfalls to keep an eye out for, too.
1. DON’T CLOSE OLD ACCOUNTS
It might seem counterintuitive, but closing old credit accounts actually has the potential to hurt rather than help your credit score. Let’s break this down into two categories, though: credit cards and loans.
Credit Card Accounts
Closing old credit card accounts could have two effects on your credit—and neither of them will help you get that perfect credit score.
First, your credit utilization might go up.
Think of it this way: if you’re closing off an old credit card you never use, you’re decreasing the total amount of credit available to you but keeping your spending the same.
Say your total credit available is $10,000, but once you close a card you rarely use, it drops down to $6,000. You regularly spend $2,000 a month, so your credit utilization goes from 20% to 33%: that’s a big jump.
Second, closing an old account might lower the average age of your credit accounts.
This isn’t a massive problem, since average accounts age isn’t a large factor in your credit score and closed credit card lines tend to stay on your report for 7 to 10 years, but your score might still feel the effects later on.
Some credit scoring models also only care about your open and active lines, though, so your credit score with those systems could drop right away.
All of this is to say that you should be aware of the impact that closing an old credit card account might have on your credit score. If you’re angling for a perfect credit score, you might be better off using those old cards every so often instead of closing the line.
Paying Off a Loan
On the other hand, paying off a loan will lead to you better cash flow and a higher debt-to-income ratio—that number we discussed a bit ago. These aren’t directly related to your credit score, but they are important considerations. The mild drop in credit score is probably worth it.
That said, finishing with a loan could shorten your average age of credit accounts and will probably reduce your credit line diversity. It’s up to you to decide whether paying early or not is better for your business.
2. CAREFUL WITH NEW DEBT
If you’re looking for another credit card or business loan, don’t apply to every kind of financing you can think of.
When you apply for a credit card or loan, a hard credit inquiry will get issued, which means a lender or credit issuer is looking into your credit report to understand whether you’ve been a reliable borrower.
Even a single hard credit check can negatively affect your credit score, taking off 5 points for a one-time credit card application, for example. But the more hard credit checks you rack up in a span of time, the worse your credit might be hit.
These factors come into play when your hard credit inquiries are getting factored into your credit score:
Certain credit score calculation algorithms—like FICO’s—recognize that you might apply for a number of loans in a short span of time, for example, and won’t penalize you for shopping around. But if you’re applying for a business loan and a mortgage, you could be hurting your chances of getting both and lowering your credit score in the meantime.
Soft credit inquiries, though, won’t ever affect your credit score. A credit check is considered “soft” when it’s made by a company looking to sell you goods and services, when it’s carried out by a company you already have credit with, or when you’re checking your own credit.
That’s where the myth of “checking your own credit can hurt your score” comes from, in fact: confusion between hard and soft credit inquiries. Feel free to check your credit as much as you want—in fact, we’d encourage you to—because it won’t get in the way of your path to a perfect credit score.
3. TRY NOT TO FILE BANKRUPTCY
Just as you don’t want to default on a loan, you also don’t want to declare bankruptcy—whether or not you’re thinking of your credit score.
Few people declare bankruptcy if they can avoid it, but you should know that your credit score will take a substantial hit if you’re forced into that corner, unfortunately. Getting loans or qualifying for credit cards will be nearly impossible and you’ll have to take a lot of care to recover.
Like with a loan default or late payment, a bankruptcy will affect your credit score more the higher your score is. Bankruptcies also count more against you the more credit accounts are involved. While you might not be able to prevent a bankruptcy, you could potentially mitigate its effect on your score.
4. DON’T STICK TO ONE TYPE OF CREDIT
Credit mix is only 10% of your credit score calculation, but if you’re out for a perfect credit score, you can’t ignore those points.
Prove you’re an able borrower by working with all different sorts of credit, from business loans to credit cards, auto loans, student loans, mortgages, and finance company accounts. That doesn’t mean taking on unnecessary debt, of course, but don’t be afraid to use credit when you’re able.
Whew—that’s all the advice we’ve got. Follow these tips and avoid the pitfalls we talked about, and you should be well on your way to that 850.
In the end, though, don’t worry too much about having a perfect credit score. There’s not much an 850 will get you that a 750 won’t… Except the pride of being perfect, of course.