Mike Scanlin has always had a high credit score.
But as a 50-year-old venture capitalist who runs a website about investing, he wanted to see if he could get a perfect 850 — just for the fun of it.
“I like puzzles,” said Scanlin, who lives in Los Angeles. “Reverse engineering how [a credit score is calculated] was a game for me. I wanted to get to 850 just to see if it could be done, since I didn’t know anyone who had done it.”
It took him two years, but with some careful financial maneuvering, Scanlin achieved his goal.
A credit score is a number ranging from 300 to 850 that’s based on your payment history, credit utilization, length of credit history, diversity of credit, new credit and other factors. Banks and credit card companies use it to help determine if they want to lend you money and what interest rates they’ll give you.
Scanlin started with a credit score in the mid-700s and a clean credit history — no debt in collections, no missed payments. Because his score was relatively good, he never paid much attention to it… until it was time to buy a house.
“I’ve always paid for my cars and large consumer goods without financing,” he says. “Because of this, my credit score was not as high as it could have been because I wasn’t showing maximum use of different kinds of credit.”
He started reading online message boards, filled with advice from “fanatics,” scheming to improve their credit scores.
Scanlin’s Steps to Get to 850
For starters, he closed out his retailer credit cards from Men’s Wearhouse and Pier 1 Imports, which had very low credit limits.
Next, he began increasing the credit limit on his three remaining credit cards as often as he could, typically every six months.
“They pretty much doubled or tripled my credit limits,” he said.
By keeping low balances on those cards, Scanlin was able to maintain a low credit utilization rate, which he believes helped boost his score.
“Fewer lines of credit with higher limits improves your score,” he says.
Finally, he took a look at the diversity of his credit. Because he’d always paid for new cars in cash, he’d never taken out an auto loan.
The next time he bought a car, he took out a loan with a low interest rate and paid it off three months later.
And even though he didn’t need it, he also took out a $25,000 personal installment loan and paid it off in six months.
“By getting that loan that I didn’t need, I was able to increase by credit score about 20 points with that one act alone, by including that type of credit in my history where there wasn’t any,” Scanlin said.
Factors That Affect Your Credit Score
After two years of slow and steady work, Scanlin checked his credit score and saw the magic number: 850.
“It’s nothing you can do every day,” Scanlin said. “You have to wait a little bit and see, wait a month to see what has an effect and do something else.”
Of course, he admits he can never be sure what truly caused his credit score to go up each time. After all, each day that passed increased the length of his credit history, another important factor in the credit score formula.
“It’s hard to pinpoint the cause and effect,” he explains.
Today, his credit score is 836, likely because he bought a house about a month ago, he says.
“I got a great rate on the mortgage,” he explains. “That will save a lot of money for me over 30 years.”
He notes the number he sees when he checks his score online with a subscription to MyFICO.com was slightly higher than the number his lender used when he applied for a home loan.
That’s because each credit bureau and lender uses a different scoring model. There are a dizzying number of credit scores out there, each created with a unique algorithm.
Scanlin broke even on the $25,000 loan by investing the money and earning enough from his investments to cover the loan origination fee and interest.
Of course, he runs a website about investing, so he has a deep knowledge many of us don’t.
Are Credit Scores a Good Measure of Financial Health?
For the most part, though, Scanlin believes his feat is repeatable by anyone who has a good credit score and wants to make it better.
Now, he’s considering helping his wife improve her credit score with a similar plan.
But even though he ultimately achieved his goal of a perfect credit score, Scanlin says the journey has caused him to question the way lenders loan money and why.
“It’s really bad that they don’t consider assets,” he said. “They only consider debts. Your credit report says nothing about how much money you have in the bank or how much possible equity you have in real estate. It’s a poor estimate, in my opinion, for someone who has assets.”
Scanlin’s own parents — who Scanlin describes as wealthy — pay for everything with cash because they don’t need to take out loans. But it’s also likely hurting their credit scores, which are supposed to be an indicator of financial health and discipline.
“For people who have problems dealing with loans and credit cards and making payments on time, the credit score is probably a decent indicator of that person’s ability to pay back the money,” he explains.
“But when I’m out getting a loan for a house, I feel like my credit score shouldn’t be the only thing triggering the interest rate they’re going to offer me.”
Your Turn: What tricks have you tried to improve your credit score?
Sarah Kuta is an education reporter in Boulder, Colorado, with a penchant for weekend thrifting, furniture refurbishment and good deals. Find her on Twitter: @sarahkuta.