Why you don’t need a perfect credit score

A perfect credit score is generally not required. In fact, lenders typically have their own set of underwriting terms that include other factors aside from credit score. Your ability to repay the loan, for instance, is often taken into consideration. So, even with a perfect FICO score of 850, you could still be declined for credit if you don’t meet the lender’s other criteria.

Before applying for credit, it’s actually wise to contact your potential lender to inquire about their underwriting criteria. By doing so, you could save yourself a potential unnecessary hard credit inquiry if you actually don’t meet their criteria.

If you don’t meet the lender’s credit guidelines, this will actually give you an opportunity to work towards meeting it. Even if you currently do meet the lender’s guidelines, you may find it more advantageous to apply for credit at a later date. For instance, let’s say that you have a 720 credit score and a mortgage lender informs you that they require a score of 730 to obtain their lowest rates, and a score of 650 to obtain a loan with a higher rate. If you feel strongly that you’ll obtain the 730 score within a reasonable amount of time, it would be worth it to hold off on your application so that you can obtain better loan terms once your score is higher.

The same tip would apply for any credit, including credit cards. When you apply for a credit card, your interest rate and starting credit limit are determined by your credit score and other factors. Although some lenders do provide interest rate reductions later and credit increases later, it’s not always guaranteed.

By applying for credit when your financial profile meets more of your potential creditor’s lending criteria, you’re likely to increase your approval odds and obtain more favorable lending terms.