Do You Need a Perfect Credit Score When a “Good” One Will Do?
We humans chase perfection in every sense, even though we know it’s not possible. We want perfect bodies, perfect friends and perfect lifestyles. Some people have that unhealthy perfectionism when it comes to their finances. Sure, having a good credit score has a positive impact on your life, but if you’re striving to get and keep a perfect credit score, you’ll put yourself on a path towards misery in no time. So what should you do? After all, it’s certainly not a good idea to treat your credit haphazardly. However, developing a financial OCD isn’t wise or healthy neither (unless you’re an investor or professional stock trader).
What is a Perfect Credit Score
First, we must ask if there even is such a thing as a perfect credit score. You’ve probably seen the scoring ranges, and for most people, falling in those higher ranges is good enough – in Canada earning a score of 725+ is considered “very good”. But there are some people who insist on going for the summit of all credit scores, the highest number one can earn. And the number is 900.
If you’re wondering whether there are people out there that have such a score, it’s safe to assume that the answer is yes. However, that doesn’t mean you should aim to be like them.
Is it Worth It?
Again, we’re not encouraging you to treat your credit and finances like they don’t matter, neither are we saying that you shouldn’t aim for the highest score possible. What we are saying, is that it’s unrealistic to pin your financial success on having a score of 900. If you get there somehow, great. If not, you shouldn’t sweat it. You see, it’s easy for the human tendency to want perfection and the fear of financial consequence gets to us. But those same emotional motivators can turn into a problem. Additionally, the banks and financial institutions don’t really work the way we assume at times.
Banks Don’t Need Perfection
Yes, the various financial institutions may appear intimidating – the banks, the lenders, the creditors – they make it seem like a minor slip-up in your finances will send your credit score crashing. But that’s not how it works. If you think you need a near perfect score to get a loan, take comfort knowing that this fear is unwarranted.
The term “good enough” applies here. It might feel nice to walk around flaunting a 900, but that’s where it ends – the person who has a 750 will probably qualify for the same things you do. So why overwork yourself to get a number that’s not much more advantageous?
What do they need
- A “healthy” score – As we’ve mentioned before, a score in the 700s and above will make it far easier to get the loan you need. Of course, the higher your score, you will qualify for the best interest rates on things like car loans and mortgages. But a healthy score doesn’t mean a perfect one.
- Favourable credit history – Your past is important. A major component of your credit history, your record of making payments gives lenders an insight into your financial habits, and whether it’s worth taking a risk on you. That’s why it pays to develop the habit of making timely payments, NEVER miss one unless there are some unavoidable circumstances.
- Diverse mix of credit – The other aspect that people often forget, which financial institutions look for, is a good mix of credit. Basically, that means having both installment credit (credit cards, lines of credit) and revolving credit (ie. mortgages, auto loans, student loans). With that said, the goal is to balance these types of credit without falling into the red.
A Reminder Worth Noting
With all that we’ve discussed, it’s worth noting that you should still aim high (without obsessing over perfection). There certainly are perks to having a high credit score, and you deserve to enjoy them as much as anyone else. To put things simply, they make finance a lot less stressful.
Getting the high score
- Easy approval – Maintain a credit score of at least 725 (in Canada, at least), and you shouldn’t have any difficulty getting approved for a loan. Of course, there are other factors to consider, such as the the amount of financing you seek along with your income, but a higher score is certainly better.
- Lowest interest rates – Interest is as unavoidable as gravity. However, you won’t feel the pinch as much since you will qualify for rates that are lower than those who don’t have the best credit.
- Less stress, more freedom – Ultimately, there’s a sense of restfulness knowing that your credit is in good shape. And in a world where there’s so much pressure on your shoulders, having a little financial security (even if it’s relative) is a good thing.
Simple reminders for keeping a high score
- Always pay on time – Late payments are a quick way to ruin your credit score, and send collection agencies running after you. So even if you can’t make a full payment for a bill, still do what you can, ideally before the due date.
- Avoid carrying a heavy balance – Don’t believe people who tell you that maxing out your credit card is a good thing. That’s a myth. Using more than 30% of your available credit can affect your score, so it’s in your best interest (excuse the pun) to keep your balances to a minimum.
- Account for your accounts – If you’re not already tracking your income and monthly expenses, start doing so. Having a greater overall picture of your finances will help you prevent overspending, stay on top of your bills, and spot any unusual patterns – all of which can lead to poor credit indirectly.
Settle for Excellence
The key takeaway here is to aim for excellent credit, without obsessing about having a perfect score. The beauty of that goal is that anyone can achieve it. Even if you don’t have the best credit right now, you can improve your numbers, getting them to a range that will make lenders more willing to work with you. Just doing the basics – paying your bills on time, keeping your balances down, tracking your income – will put you on the right path. And you can get there without your credit score being perfect.