WSJ Your Money Briefing - Here’s What Happens When Your Credit Score Hits 850

Episode Date: January 13, 2025

About 1.5% of Americans have a perfect credit score, according to credit reporting firm Experian. But how much weight does an 850 score carry? Wall Street Journal reporter Imani Moise joins host J.R. ...Whalen to discuss how much this grade of financial health really matters and what happens when you reach it.  Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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Starting point is 00:00:00 Okay, business leaders, are you here to play or are you playing to win? If you're in it to win, meet your next MVP, NetSuite by Oracle. Right now, get the CFO's guide to AI and machine learning at netsuite.com slash Wall Street. netsuite.com slash Wall Street. Here's your money briefing for Monday, January 13th. I'm JR Whalen for the Wall Street Journal. The average credit score in the U.S. is 717. So what does it take to boost your score to a perfect 850?
Starting point is 00:00:40 It's become an everyday obsession for some Americans, including one man who spoke to our reporter, Amani Moise. The first thing that he tried was closing some old retail credit cards, but that was actually a mistake, because when you close old cards, you lower your utilization, which could actually decrease your score. The next thing that he did was that he zeroed in on his credit card balances, trying to keep his utilization within a golden range so that he could perfect his score. So what happens when you reach a perfect credit score? It doesn't really matter. Emani will join us to go through the numbers after the break. OK, business leaders, are you here to play or are you playing to win?
Starting point is 00:01:25 If you're in it to win, meet your next MVP. NetSuite by Oracle. NetSuite is your full business management system in one convenient suite. With NetSuite, you're running your accounting, your finance, your HR, your e-commerce, and more all from your online dashboard. Upgrade your playbook and make the switch to NetSuite, the number one cloud ERP. Get the CFO's guide to AI and machine learning at netsuite.com slash wall street. The credit reporting firm Experian says about one and a half percent of consumers have a
Starting point is 00:02:01 perfect credit score. How much does hitting that milestone really matter? Wall Street Journal reporter Imani Moise checked in with a Texas man about that, and she joins me. Imani, you spoke with Steve Michelle, who achieved a perfect score. Why was that important to him? Well, usually people care about their score when they're about to buy a house or maybe buy a new car so that they can get the best rate on whatever loan that they're applying for.
Starting point is 00:02:26 But Steve wasn't interested in applying for a loan. He's an engineer by trade, so everything has to be perfect. And he saw his score going higher and higher and he wanted to figure out how he could crack 850. How long did it take him? It took years because he only got an updated version of his score once a month. That means he would have to test out a strategy, wait a month to figure out if it was successful,
Starting point is 00:02:49 and then if not, he needed to test a new strategy and wait another month. In total, it took about five years for him to feel comfortable that he's cracked the code. At one point, his score was already in the 840s, nearly perfect. What more did he have to do to push it to 850 and then keep it there?
Starting point is 00:03:05 He tried a lot of things. The first thing that he tried was closing some old retail credit cards, but that was actually a mistake because when you close old cards, you lower your utilization, which could actually decrease your score. The next thing that he did was that he zeroed in on his credit card balances, trying to keep his utilization within a golden range so that he could perfect his score. When someone's score hits 850, what happens? Is there any significant change in their credit profile?
Starting point is 00:03:33 Not much. And I know that's an anti-climactic answer and it can be hard to believe. 850 is the highest credit score that you can get in most scenarios. But when it comes to how much you're going to pay for a mortgage or the interest rate on an auto loan, there's really not that much of a difference between an 800 and an 850 and even a 750 and 850. What's the takeaway from most other people whose goal it is just to keep up with their bills? A lot of the financial advisors that I spoke to, they emphasized that you shouldn't be focusing on your credit
Starting point is 00:04:06 score for the sole purpose of focusing on your credit score. They compared that to going on a diet and only counting calories without taking into account the nutrition of what you're eating. The credit score should be seen as an outcome and usually when you're taking good financial steps paying your bills on time, it'll go higher naturally. So if you focus on the important things, then a higher score will be a byproduct of that. You mentioned that it doesn't make much of a difference
Starting point is 00:04:32 if someone's score falls from 850 to 800 or even down to 750. But what would happen if someone's score falls below 750? What changes might they see? That is the difference between good and exceptional credit. You may qualify for slightly higher interest rates. A score below 750 is really an indicator that there are probably some steps you can take
Starting point is 00:04:58 to put yourself in a healthier financial position, whether that's paying off some debts, making sure to keep lower balances, things like that. After your score falls below 750, where's the next red flag in terms of score thresholds? Anything above a 740 is typically considered very good credit, and anything above a 670 is considered good credit. So once you have good credit, that means that you should be approved for most kinds of loans,
Starting point is 00:05:27 even if it's not at the most competitive rate, if you're on the lower end of that spectrum. But anything below a 670 is considered fair, and anything below a 580 is considered poor. When you fall into that territory, you may start seeing some rejection. So maybe you're no longer qualified for the best credit cards,
Starting point is 00:05:45 or some mortgage providers may reject you outright. You mentioned that financial professionals say, don't focus on your credit score just to focus on that particular number. But if somebody wants to boost their score, what are some ways that they can do that? If you are struggling with credit card debt, one thing that you can do is apply for a personal loan to consolidate
Starting point is 00:06:06 that debt. That will benefit your score in two ways. One, it'll diversify your credit types because the algorithm likes to see that someone has a mix of loans and it'll lower your utilization because you're using that loan to pay off your credit cards. So it has a dual benefit in that way. The other thing to do is to really just pay down your credit cards, so it has a dual benefit in that way. The other thing to do is to really just pay down your debt as much as you can, avoid applying for unnecessary credit lines. So if you're someone who likes to open a lot of credit cards at store checkouts, those retail cards, maybe you hit pause on that for a little bit.
Starting point is 00:06:41 But other than that, generally good financial hygiene will help you improve your score. Why is it important for consumers to know their number? One, it's important to know your credit score and to know what's on your credit report just to be aware of any potential fraud. There's been a lot of news about data breaches or hacks having passwords exposed. And that means that it's easier than ever for third parties to get a hold of your information and open up false accounts, which could ruin your score. So keeping on top of your numbers is a good way to monitor that. The other thing is that knowing your score makes you more likely
Starting point is 00:07:15 to practice good financial habits. A study from 2019 showed that just by sending quarterly reminders to check your score, people were more likely to pay their bills on time and they saw their scores go up over time. That's WSJ reporter Amani Moise. And that's it for your money briefing. This episode was produced by Ariana Asparu with supervising producer Melanie Roy. I'm JR Whalen for The Wall Street Journal. Thanks for listening. Okay business leaders, are you here to play or are you playing to win? If you're in it to win, meet your next MVP.
Starting point is 00:08:07 NetSuite by Oracle. NetSuite is your full business management system in one convenient suite. With NetSuite, you're running your accounting, your finance, your HR, your e-commerce, and more, all from your online dashboard. Upgrade your playbook and make the switch to NetSuite, the number one cloud ERP. Get the CFO's guide to AI and machine learning at netsuite.com slash wall street. Netsuite.com slash wall street.

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