Credit is perfect, but my score is not. Does that affect my rate?

Is there a difference in loan rates for borrowers with credit scores over 740?  Only at the water cooler. 

"I have a credit score of 776 out of the possible 850, even though I have always paid my full credit card balances on time for almost 20 years. I have lots of credit cards because I usually open them to get offers like miles. Some of them have credit limits of $10K, or $15K. If I'm getting these offers, it seems like my score should be higher."

Here's my take, from a mortgage loan originator who works with credit reports and scoring every day. First, your score is very, very good. There is no practical advantage—other than bragging rights—to a higher credit score. From a mortgage lending standpoint, a FICO score of 740 or higher gets you the best rate. 760 gets the best rate of mortgage insurance for anyone who might require it.

There are several components to the FICO score. One of these, of course, is performance on financial obligations—how many late payments a borrower might have, and how long ago they occurred. Once any late payment is two years old, it has far less effect on one's score than a more recent event. At three to four years old, the impact on the score is negligible. All late payments drop off after 7 years. Bankruptcies and foreclosures are gone in 10. 

Credit utilization is another critical component. Once your balance for revolving accounts (credit cards) exceeds 30%, it starts to pull your score down. It is an excellent idea to keep revolving accounts active, but not necessary to carry a balance. "Hard" inquiries to your credit file can have some effect if there are too many of them. A "hard" inquiry is one connected to an application for credit. If a creditor with whom you already have an account checks your credit as part of their regular maintenance process, your score will not be affected. Likewise, if you check your credit, your score won't be affected. These are called "soft" inquiries.

When you apply for credit, like a car loan, and the creditor runs your credit and extends credit, your score won't be affected in any meaningful way—but having a new "unseasoned" account will pull your score down a few points for 3–6 months before it recovers. An account with a consumer lender, like a payday lender, can hurt your score, as will opening many new accounts in a short period. The age of accounts is a positive factor. An American Express or Visa card that you've had for 10 or 20 years will add points to your score—possibly a lot. I have seen very few 850 credit scores in my career, and in every case, they have been from people who have had some of their accounts for 30 years or more. The bottom line is this: your credit score is just fine—exceptional, even. If you just keep doing what you're doing, it will creep higher of its own accord.

 

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