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Debt Management Guide 2008
Joys of good credit
Good credit can improve your financial health in a lot more ways than most people realize.
Joys of good credit
Perfect credit score: unrealistic, unnecessary


You're one of the lucky ones in the financial pecking order: Your credit score is high. Really high. But what if you want perfection?

Get a hobby.

Having a high score is great. But the slight difference between very high and perfection just won't make a difference in your everyday life.

A credit score is your credit history at one point in time, reduced to a single number. One of the most popular credit-scoring models, the FICO score, can range from 300 (very bad) to 850 (solid gold). But don't expect to see many 850s walking around.

"It's very rare to be there," says Maxine Sweet, vice president of public affairs with Experian, one of the three major credit bureaus. "I've never seen it."

While it's theoretically possible to score 850, most high scores top off around 825, Sweet says. "You can't get much higher," she says.

From a practical standpoint, that's just as well, several credit experts say.

"There is no reason to go from 775 to 850, because you're still going to get the same rate," says Linda Sherry, spokeswoman for Consumer Action, a Washington, D.C.-based advocacy group.

In practical terms, there seems to be no measurable difference between an 800 and 850.

"I have not noticed a difference" in terms offered to people with scores above the norm and those in the 800 to 850 credit score range, says Curtis Arnold, founder of CardRatings.com. In either event, "you're going to get treated to their best rate."

Higher and higher
If your credit score is high and you still want to nudge it up a few more points, try these six tricks of the trade:
1. Use credit sparingly
2. Use a small fraction of your available credit
3. Don't carry a wallet full of cards
4. Make every payment on time
5. View credit as a safety net
6. Look at your credit report

1. Use credit sparingly
Even if you pay off your balances every month, you may show a balance on the day your history is pulled for a loan, says Craig Watts, public affairs manager with Fair Isaac Corp., the company that pioneered credit scoring and developed the FICO score. Creditors like to see consumers using credit judiciously so that they know consumers will have no problems paying, he says.

2. Use a small fraction of your available credit
Credit scoring will examine how much of your available credit you're using and penalize you if the percentage is too high.

The ideal? "As close to zero as you can get," Watts says.

The limit credit bureaus want to see? Anywhere from 25 percent to 35 percent depending on the formula (and who you ask).

"A balance above 50 percent really begins to hurt you," says Steven Katz, director of corporate communications for TransUnion.

So keep it at 25 percent to be on the safe side. If you're shooting for that super-premium score, just remember: the lower, the better.

In years past, credit counselors used to tell consumers to close accounts they weren't using, especially if they were getting ready to apply for a mortgage or car loan. The reason: It was believed that lenders were leery of someone who could go out at any time and max out their credit and add a large pile of debt to their obligations.

-- Updated: June 16, 2008
 
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