Clark Howard, a prominent consumer finance expert, entrepreneur, author and radio host, challenges the conventional wisdom that striving for an 800 credit score (or higher) is a universally wise financial goal.
While many individuals view an 800 as the pinnacle of creditworthiness, Howard contends that this pursuit may be excessive and unnecessary for most consumers. He said, “There are people who want to be at 850 (the highest possible score). I don’t get it. You’re crazy if you obsess with an 800 or 850 credit score.”
Howard encourages you to strive for good credit, but believes that once you reach a certain score, pushing for additional points is a waste. “Your goal is from wherever you are right now, to try to move that number up,” he said. “But once you get to 760, just give it a rest.”
Let’s take a closer look at how credit scores work and why Howard’s reasoning for aiming for an 800 credit score might be unreasonable.
Understanding the Credit Score Scale
Howard emphasizes the importance of understanding the credit score scale before setting lofty goals. Credit scores typically range from 300 to 850, with higher scores generally indicating better creditworthiness.
According to Experian, scores are classified as the following:
- 300-579: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very good
- 800-850: Exceptional
While an 800 credit score is considered excellent, Howard argues that achieving such a high score may not provide substantial additional benefits compared to scores in the high 700s. Fannie Mae’s qualifying score for a fixed-rate home loan is 620; a big difference from the near-perfect 800.
Diminishing Returns on Interest Rates
One of Howard’s key points is that once a consumer reaches a credit score in the high 700s, the incremental impact on interest rates becomes marginal. Lenders often offer the most favorable terms to individuals with scores in the upper tiers, and the difference in interest rates between, for example, a 780 and an 800 credit score may be minimal.
Howard encourages consumers to focus on reaching a score that qualifies them for the best interest rates rather than fixating on an arbitrary threshold like 800.
Opportunity Cost of Credit Score Obsession
Howard suggests that the time and effort dedicated to achieving and maintaining an 800 credit score might be better spent on other aspects of financial well-being.
Credit rating agencies use several factors to score consumers. Chasing an 800 or better score can be challenging since many factors could affect it. There isn’t a one-size-fits-all solution to achieving credit perfection.
Obsessing over minute details to boost a credit score could divert attention from more significant financial goals, such as saving for retirement, building an emergency fund or investing in assets that yield higher returns.
The Role of Behavior and Financial Habits
Howard emphasizes that a credit score reflects financial behavior and habits. Aiming for an 800 credit score should not be the sole focus.
Surprisingly, many financially responsible individuals may have a low credit score even though they don’t have any debt. They may be penalized for their lack of credit — and someone with personal loans and credit card debt may have a better credit rating. There are even cases in which individuals have experienced a drop in their credit score once they paid off a mortgage or vehicle loan, for example.
Instead of striving for 800, individuals should concentrate on cultivating responsible financial habits, such as timely bill payments, reducing debt and smart budgeting. These behaviors contribute to a healthy credit profile and overall financial stability.
Diverse Credit Mix and Duration of Credit History
Another aspect Howard highlighted is the importance of a diverse credit mix and the duration of credit history. While a strong credit score is beneficial, lenders also consider the types of credit accounts an individual holds and the length of their credit history.
Focusing solely on the numerical score might neglect these crucial factors, contributing to a more holistic assessment of creditworthiness.
Avoiding Excessive Credit Inquiries
Howard warns against pursuing an 800 credit score if it involves multiple unnecessary credit inquiries. Each credit inquiry can have a small, temporary impact on the credit score.
Howard encourages consumers to be strategic about credit applications, especially if they are already in a credit score range that qualifies them for favorable terms.
Your Credit Score May Vary
Besides Experian, Equifax and TransUnion credit scores, there are many other scoring models. They include:
- Vantage: Focuses on payment history
- TransRisk: Weighs new accounts more heavily and scores are often considerably lower than Fair Isaac Corporation (FICO) scores
- Experian’s National Equivalency Score: The highest score is 1000; 800 is considered fair to good
To add to the complexity, Experian and Equifax provide an additional 16 FICO credit scores to lenders based on the type of inquiry they seek, while TransUnion offers 21.
What does this mean to someone in pursuit of a credit score of 800 or higher? Your results may vary depending on the rating model used. Your credit score may be 810 on Credit Karma, 760 on Equifax and 680 on Vantage; it all depends on which credit bureau your loan issuer or card company reports to, or what factors each model decides to weigh more heavily.
The Bottom Line
Howard challenges the notion that striving for an 800 credit score is a universally sound financial objective. He says that a quarter of Americans are “stuck” at a score in the upper 700s, which is considered a respectable number to achieve.
Howard argues that achieving a high score of 800 or more may take time. However, the achievement may not yield substantial additional benefits and could end up distracting individuals from more significant financial priorities.
He encourages a balanced approach, focusing on responsible financial habits, maintaining a good credit mix and considering the broader spectrum of financial well-being beyond a number.