Category Archives: Credit score

Good Business Credit 101: What It is and How to Achieve It

It is essential to have a good personal credit score in order to receive the best rates on credit cards, home mortgages, and car loans. However, do you know that your business credit score is equally critical for the success of your business?

Are you curious about what constitutes a good business credit score or how to establish business credit? This guide provides a comprehensive look at constructing a good business credit score.

What Is a Good Business Credit Score?

Achieving a solid business credit score is an important factor for overall business success. The advantages of having a good credit score include access to affordable financing, the capacity to expand your business, and favorable trade credit terms.

Keeping a high credit score is seen as a low risk for lenders, whereas a low one is seen as a risk. Because of this, it is essential to not only take care of your business credit score, but also to be knowledgeable about what makes a good score.

The following systems are used for business credit scores, and we’ve included the corresponding credit score levels that are regarded as favorable:

It’s noteworthy that the FICO Small Business Scoring Service (SBSS) uses the personal credit score of the small business owner in creating a hybrid score. Because of the close relationship between the business and the owner, this score has become a crucial element when deciding on the creditworthiness of small businesses.

Why Does Your Business Credit Report Matter?

Having a good personal credit score is important to many people. However, knowing why you should have a strong business credit score is not always as clear. If you are just beginning your small businesses, you may still be using your personal credit score to get loans for your company. 

Here are some reasons why establishing a good business credit score is important:

  • Account distinction: By creating a business credit record, you can create a clear division between your personal and professional finances. This will help you to accurately record your expenses for tax requirements.
  • Heightened borrowing potential: Having a robust business credit score may allow you to access larger amounts of credit. This could be useful for things like business expansion or renovation.
  • Simplified financing: Having an excellent credit profile may help you to acquire small business loans or other lines of credit with advantageous interest rates.
  • Lower insurance premiums: As you probably know, insuring your small business can be expensive. Having a great business credit score is a way to maintain lower rates.

It is important to keep in mind that both providers of goods and financial institutions will review your business credit to:

  • Determine whether to work with your business as a partner.
  • Weigh the option of granting you a loan.
  • Calculate insurance premiums and interest rates.
  • Establish payment terms.
  • Decide if your account is to be given to a third-party collection agency if you fail to pay on time.

Having an understanding of how business credit works can be incredibly advantageous for the success of your small business. Taking the effort to learn about business credit will pay off in the long run.

How Can You Set Up a Business Credit Score?

By now, it is clear that having a positive business credit score is important, so you may be asking yourself how to build a high business credit score. It is similar to the process of starting a business. Consider taking the following steps:

  • Structuring your business: A sole proprietorship can be tricky when trying to differentiate between personal and business finances, and to generate a separate business credit rating. Therefore, it may be a wise decision to consider setting up an LLC or corporation.
  • Registering for an Employer Identification Number (EIN): This nine-digit number, which is similar to a Social Security number for businesses, is issued by the Internal Revenue Service(IRS). An EIN is necessary to acquire a business license, open a business bank account or credit card, and for other business-related activities.
  • Distinguishing between business and personal finances: Having different banking accounts and credit cards for business and personal use can demonstrate that you are a legitimate business and make accounting and taxes easier.
  • Gaining business credit: Having credit available can be beneficial for business expansion and if a cash flow crunch arises. Additionally, keeping your credit utilization rate at or below 30% of each available line of credit can be beneficial.
  • Securing a business loan: Business loans and lines of credit are essential for covering necessary expenses such as marketing, and they can be used to handle unexpected costs without having to resort to a high-interest credit card. Furthermore, these loans can help improve your business credit score.

How Can You Improve Your Business Credit Score?

Achieving a high business credit score requires the same two steps as that of a personal credit score: establishing credit and building on prior successes. Here are a few suggestions on how to do so:

  • Make your payments on time: All agencies focus heavily on the payment track record you have with lenders, creditors, and suppliers. Ensuring that payments are made and received on time is essential for any business to maintain a good credit ranking.
  • Work with partners who inform the business credit bureaus: Even if payments are being made in full and on time, if the details are not reported to the bureaus, they will not be reflected in the score. Make sure the vendors you use report to the bureaus. If not, consider working with those who do.
  • Decrease outstanding balances: Credit use is another major element that affects your business credit score, so it is important to lower any substantial balances. Start with accounts with the highest interest rate and then work your way down, paying off creditors according to the interest rate.
  • Keep accounts open: Closing too many accounts restricts the amount of credit you have accessible and can also affect your score. It might be beneficial to keep a credit card open even if it is not used much, and possibly even one recurring bill.
  • Speak to your creditors: Controlling the financial resources of a small business can be tricky. If a customer does not make payments in a timely fashion, this might then cause you to be unable to pay the creditors you owe. If there are difficulties with accounts payable, let creditors know what is happening with the business and make an effort to pay bills. It is best to not take advantage of this option too often as it can damage the business’s reputation.
  • Monitor your business score regularly: Contrary to personal credit scores, there are no “free” ways to check a business credit score. However, it is worth contacting the bureaus and requesting a report occasionally to make sure there is no inaccurate information and to determine which accounts are affecting the score adversely. Checking a business credit score can cost different amounts based on the level of information you are checking, so it is best to examine each reporting agency separately.

It is important to be aware of the components of a great business credit score in order to succeed as a small business. This will enable you to construct a high business credit score that will give you a solid base upon which to advance your business in the years to come.

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Thank you for reading our article. We hope you learned new ways to battle creditors and banks while protecting yourself.

We would encourage you to become a member of HigherScoreNow.com and start to leverage all the benefits of having good credit. You deserve this. 

All You Need to Know About Business Credit Scores and Reports

As a business owner, one of the most important elements that you should consider is your business credit score. 

Why should you aim for a high score? It will enable you to access lower rates when applying for business loans and even better terms when considering business insurance. On the other hand, a poor score can make it difficult to find institutions, insurers, and vendors that are willing to provide services to your business.

Therefore, in order to ensure the success of your business, it is essential to know how your business credit score contributes. 

In this article, you will gain practical information on what is a business credit score and business credit report, how they are calculated, where you can get one, and finally the top benefits of having a good business credit score.

What Is a Business Credit Score?

A business credit score is a number that reflects the creditworthiness of a business. It is determined using information from a business credit report such as past payment performance, available credit/amounts owed, the type and size of the business, and other markers such as bankruptcies or tax liens.

For potential creditors to gain insight into your business’s financial stability and the likelihood of timely payments, they will refer to the following three major credit bureaus: Dun & Bradstreet, Equifax, and Experian. Each of these companies provide different scorecards.

The Dun & Bradstreet scoring system, for example, has two components: a delinquency predictor score and a failure score. The first one evaluates the probability of delayed payments, and the latter forecasts the chances of a business ceasing operations or going bankrupt in the next year.

It is also important to know that business credit scores, unlike individual credit scores, usually range from 0-100.

What Is a Business Credit Report?

The business credit report contains your business credit score and other relevant information regarding your company. For instance, Experian’s CreditScore report includes the business credit score alongside particulars of payment patterns, account histories and public records.

Different business credit bureaus maintain distinct records. All the data in these business credit accounts are open to the public. This means that other companies can pay money to access your information, and you can receive details concerning other companies as well.

How a Business Credit Score Is Calculated 

It is important to know how your business score is calculated so that you can improve your company’s borrowing power, save money, and unlock growth and expansion opportunities.

The three leading credit bureaus have different metrics when calculating scores, but generally they all consider the same aspects, which are:

  • History of payments made to debtors and suppliers.
  • The size and age of your business.
  • Information about your oldest financial account.
  • Use of credit accounts.
  • Established trading routes.
  • Risk of business failure.

The primary sources of acquiring this data by the three leading business credit bureaus is:

  • Vendors
  • Banks 
  • Trade associations
  • Credit card companies for businesses

How to Identify a Good Business Credit Score

Generally, the credit rating of a company is often better the higher it is, though the exact scores may vary depending on the credit bureau.

Dun & Bradstreet Business Credit Score

The most important scores used by Dun & Bradstreet are the Paydex score, failure score, and delinquency score.

  • Paydex score (1 to 100): A score of 80 and above is seen as a low-risk indicator, a score between 50 and 79 shows moderate risk, and any score below 50 presents a high risk of late payment.
  • Failure score (1,001-1875): A lower score indicates a greater chance of bankruptcy or a shutdown of operations in 12 months.
  • Delinquency score (1-5): The lower the score, the better, as it lowers the risk of serious late payment (91-plus days) or bankruptcy.

In order to acquire a Paydex score, you must apply for a DUNS number, which is provided free of charge through Dun & Bradstreet’s web page. An example of a Dun & Bradstreet business credit report can be seen here.

Equifax Business Credit Score

The Equifax business credit report provides three different evaluations for companies: the payment index, the credit risk score, and the business failure score.

  • Payment index (0 to 100): Reflects how regularly payments have been made in the past. The higher the score, the better the payment record, with 90 or higher showing bills are being paid on time.
  • Credit risk score (101 to 992): It shows the probability of your company making payments that are significantly overdue. The higher the score, the less likely there is to be a risk.
  • Business Failure Score (1,000 to 1,880): This measurement indicates the probability of a business shutting down over the course of a year. The lower the score, the more likely it is that the business will experience failure.

A rating of zero on a credit risk score or business failure score implies bankruptcy. Here is a demonstration of what an Equifax business credit report looks like: Equifax business credit report.

Experian Business Credit Score

The CreditScore report from Experian provides an assessment of the company’s credit score and an assessment of the probability of financial instability. It also provides data such as payment patterns, records of accounts, and public records.

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  • Business credit score (1 to 100): The risk of serious payment delinquencies decreases with an increase in the business credit score.
  • Financial instability risk (1 to 5): The risk of default or bankruptcy in the next 12 months can be assessed based on a financial instability risk rating, where a lower score indicates less risk.
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A sample of what an Experian business credit report appears like can be seen here.

The Top Benefits of Having a Good Business Credit Score

Establishing and developing business credit can be beneficial in a variety of ways. Below are some of the advantages:

  • Improved conditions for company loans: Having an impressive commercial credit score can boost your prospects of securing a business loan or line of credit with beneficial terms.
  • Reduces business insurance payments: As your company expands, the cost of business insurance can become expensive. A favorable business credit score may aid in keeping costs down.
  • Having better payment arrangements with vendors: After you receive the goods or services, the length of time you have to pay the vendor or supplier can vary from 30 to 90 days. This is largely determined by the credit score of your business.
  • Establishes your credibility: A good business credit score makes you credible in the eyes of customers and partners.

What Is the Process for Obtaining a Credit Score for My Business?

This is the process for obtaining the business credit score from all the significant credit bureaus:

  • Dun & Bradstreet provides a complimentary report with limited access to four scores, available on its website. Should you choose to, you can pay a fee (ranging from $15 to $30 a month) for unlimited access and extra services.
  • You can purchase an Experian CreditScore report online for the cost of $39.95 per report. Alternatively, one may subscribe to Experian’s Business Credit Advantage plan for a yearly fee of $189, granting them unlimited access, as well as alerts, monitoring and further analysis.
  • To access your Equifax business credit score, you must have applied for a business loan or credit card. Contact an Equifax representative to receive the report, providing proof of the application. Fortunately, it is free of charge.

The Bottom Line

Good credit is the lifeline of your business. Company owners should take time to examine their business credit occasionally. Even though each bureau states that its information is checked thoroughly, errors could still appear on the company’s report. Generally, these can be rectified by getting in touch with the bureaus and providing proof that the details are incorrect.

Thank you for reading our article. We hope you learned new ways to battle creditors and banks while protecting yourself.

We would encourage you to become a member of HigherScoreNow.com and start to leverage all the benefits of having good credit. You deserve this. 

The Ultimate Guide to Better Business Credit Scores

Business owners should be knowledgeable about credit scores to ensure success. Being aware of the impacts of a credit score and being proactive in improving one can be advantageous to a business.

An Overview of Business Credit Scores

Understanding business credit scores is key for any business. Knowing how this rating system works and how it is calculated is incredibly beneficial for any company. It is important to understand that business credit scores are not the same as personal credit scores. Business credit scores are based on different criteria and are used to determine the creditworthiness of a business. These scores can be used by lenders to determine whether or not to extend credit to a particular business. As such, it is important for businesses to understand and monitor their credit scores in order to ensure that they are able to access the credit they need.

If you’re a small business owner, you have probably thought of ways to get financing to expand your business. Although it is possible to start a business with personal funds from your savings, it is very likely that you will need to obtain more resources. Knowing how business credit scores work will enable you to unlock limitless opportunities for your business. You will be able to learn about how small business funding works, how to calculate credit scores, the difference between personal and business credit scores, and why you need a good credit score to grow your business.

This comprehensive guide is intended to answer all these frequent questions about credit scores and how they are necessary for all businesses, even if you are not currently seeking credit. Finally, you will be able to understand how conventional small business financing firms use your credit score data.

Business Credit Scores

Before diving straight into the particulars of business credit scores, their applications, and how to monitor them, it is essential for you to know why they are so significant, and why this is a complex topic for many. Numerous entrepreneurs like you, even those with high educational backgrounds, find business credit to be a difficult topic. There are many explanations that make it both complex and highly beneficial.

The Benefits of Having Good Credit Scores

  • Before offering terms, suppliers will often review your business’s credit score. Having a high score will enable you to negotiate the best deals.
  • Financial institutions like banks place significant emphasis on business credit scores and FICO ratings when authorizing lines of credit.
  • In case you don’t have a business credit score, you must have a strong history of personal credit in order to secure a business loan.

The Challenges of Managing Credit Scores

  • It can usually take a minimum of one to two years to construct or enhance your company’s credit history or individual credit score.
  • It is possible to positively affect your credit scores by applying consistent effort, yet it is not within your power to alter them, since they are determined by external rating authorities.
  • Keeping track of internal documents and monitoring the credit scores of small businesses can be a tedious process.

What is a Business Credit Score?

A business credit score is a numerical value that indicates the likelihood of securing financial assistance for a business.

A personal credit score, or personal FICO score, is comparable but not identical to a business credit score. Most people are aware of the concept of personal credit scores. However, there are some differences between the two. Personal credit scores range from 300 to 850, and most loan providers need a minimum score of 600 in order to give out a personal loan.

The range of business credit scores is from zero to 100, and for many small business loan providers, the minimum needed is 75. The Small Business Administration Banks (SBA), suppliers, and other lenders will look at the business credit score and FICO score closely when providing credit or payment plan options.

What Are the Differences Between a Business Credit Score and Personal Credit Score?

Business credit scores differ from personal credit scores in the following ways:

  • Rating Agencies: TransUnion, Equifax, and Experian are used by consumer lenders, while business financing companies look to Dun & Bradstreet, Experian, Equifax, and even their own custom formulas.
  • Scoring Range: For personal credit, the scores are from 300 to 850, and business credit scores run between 0 and 100.
  • Standardization: Most credit bureaus use either FICO or VantageScore to evaluate consumers. Commercial lenders, in contrast, usually create their own criteria or turn to rating organizations such as Dun & Bradstreet to make lending decisions. Every small business financing lender has a distinctive formula.
  • Accessibility: Multiple sources enable you to view your personal credit score without any cost, but the number of sources that allow you to see your business credit score is limited. To get your score, you must pay the three major business credit bureaus (Dun & Bradstreet, Experian, and Equifax).
  • Data: While most lenders in the small business sector view only the business credit score or FICO score, some will take both into account.

A great tip for you as a small business owner is to try to keep your personal and business credit cards and borrowing approaches separate. This is because a bad business credit score can have an impact on your personal credit score, while a poor personal credit score can prevent you from getting small business financing. However, it can be quite hard to keep personal and business finances apart, as many business financing alternatives still call for an individual’s FICO score.

Applying Business Credit Scores

Business credit scores are a helpful tool for companies to assess their financial standing and to be able to make informed decisions. They can be used to determine a company’s creditworthiness and to get a better understanding of the potential risks involved in a financial transaction. By using business credit scores, a company can better manage their financial obligations in order to ensure that they are able to make timely payments and to maintain a good credit rating.

To protect personal assets, it is advisable for start-up companies to create a “business credit profile” that distinguishes their business credit from their personal credit as early as possible. Initially, personal credit is usually what is used to finance the start-up, while personal assets are used for collateral.

Ensure that only business-related expenditures are charged to business credit cards and that you don’t combine personal and business credit cards. Keep financial records, tax documents, and insurance separate. It may also be a good idea to have two different banks.

If you are just starting your company, chances are you have been using your personal funds to provide capital and have labeled it as “loans from officers.” After you have been running the business for a while, it is beneficial to set up a line of credit specifically for the business. This can help protect you from legal issues and make it easier to obtain a loan for your business.

Factors That Can Impact a Company’s Credit Score

  • Longevity: How much time has your company been operating? Your score can be improved if you have been running the business for a few months or years.
  • Income: How much money does your business make every year? If your company has a healthy income, that could affect your rating positively.
  • Possessions: What resources does the business own? If you can show that you have some assets, such as real estate, this can boost your credit score.
  • Managing Debt: Are you currently carrying any loans or credit cards? If you are using credit sensibly and paying it off within the designated time period, this will boost your credit score and better your chances of being approved for a loan in the future.
  • Previous Experience with Personal and Business Loans: How long have you been taking out personal and business loans? What kind of loans have you taken in the past, how big were they, and how fast did you pay them back? Having a record of past loans which demonstrates your ability to pay them off can be beneficial for your score, and make you more attractive to potential lenders.
  • Legal Filings: UCC filings and other public reports, such as liens and court judgments, are associated with an individual.
  • Industry-Related Risks: Certain industries, such as bars and eateries, have a tendency to be more risky than others, and lenders analyze them differently based on prior experience.

If you are the proprietor of a business, you can obtain a copy of your D&B report for a fee by calling 1.800.333.0505. Generally, rating agencies take into account indications that you are attempting to enhance your business credit by making payments in a timely manner, getting and retaining credit cards for your business, and making timely payments on them. They also take into account the steadiness of your company and whether or not you are constantly increasing revenue and profits. All of these elements affect your score.

How Can You Use a Business Credit Score?

When considering whether to give financing to small businesses, loan providers will consult business credit scores from various credit rating bureaus. This score also helps lenders decide the size of the loan they are willing to give. Factors such as whether the business has paid previous debts, how quickly payments are made to suppliers, and how much money the business has earned over time are all examined.

The creditworthiness of a business can be evaluated anew through business credit scores. When a score is high, it implies a business has a record of making payments promptly. When the opposite is true, a low score serves as an alert. Loan providers need to be certain of the likelihood of a business repaying the loan on time. To help them make their decision, the rating agencies offer historical data for their reference.

Like it or not, small business loan providers usually rely on business credit scores to determine whether an individual should receive the loan they are requesting. Generally, lenders take into consideration both personal and business credit scores.

When opening a new business, it’s important to remember that your credit history from previous companies will follow you. It’s a smart idea to keep accurate records, regardless of whether or not you close one business and open another.

What Qualifies as a Positive Business Credit Score?

This is quite possibly the most important question raised in this article. Unfortunately, it is also one of the most complicated to respond to directly, since every lender applies their own method for determining when to offer credit.

Most small business lenders prefer a business credit score over 75, however, there are local lenders who may consider accepting scores lower than this for small businesses or startups. Consumer financing companies that stick to conventional methods are unlikely to provide loans to individuals with credit scores below 500. Nevertheless, if someone is ready to take on a higher interest rate and stricter payment conditions, other options are available.

This information from Nav.com provides useful insight into how small business lenders make their lending determinations. As displayed, a business credit score that is “in the red zone” is in a difficult situation. It is undesirable for a business to be within this credit reporting area.

What Is Business Credit Reporting? 

Who Are Credit Reporting Agencies and What Is Their Role in Tracking Business Credit Scores?

Many small loan lenders use Dun & Bradstreet’s PAYDEX® scores as one of their criteria for making credit decisions. This score is based on the speed with which your business settles its debts, and it considers more details than just payment records.

You can sample the Business Information Report from Dun & Bradstreet displaying PAYDEX®, D&B Rating, Composite Credit Appraisal, and D&B Viability Rating. Dun & Bradstreet accumulate an immense amount of data on any small company that holds a “D-U-N-S® Number.” This information is sourced from public records, as well as direct conversations with the business and other businesses who work with the company being evaluated.

A detailed report from Dun & Bradstreet includes the following information:

  • Information about yourself, including the location of your business, your contact number, and the D-U-N-S® number.
  • A brief overview of when the business started, the total number of employees, the current capital, yearly income, and total worth.
  • The general D&B Ranking and the D&B PAYDEX® score
  • The Viability Ratings are based on calculations made by D&B which involve taking into account possible risk factors, comparing the company to other ones in the same sector, and additional considerations.
  • The background of your company, including details on the current and past stakeholders, in addition to personal data on you and other important members of the executive team.
  • Business registrations, such as the incorporation of a company.
  • Summary of federal government action that displays data that is open to the public.
  • Records about business activities, including industry-specific details, the employee count, and the physical address of the facilities and their locations.
  • The Standard Industry Classification and the North American Industry Classification have their own codes.
  •  A visualization of corporate affiliations between parent companies and their branches can be depicted by a tree diagram.
  • Examining Financial Reports and Crucial Business Proportions such as the Yield on Revenue, Fast Ratio, and Present Ratio.
  • Any public documents such as liens, court judgments, and UCC filings can be found through public records.
  • Information on finances is presented in great detail.

When it comes to lending decisions, lenders may rely on composite scores from Equifax and Experian to make their judgments.

Experian’s Intelliscore PlusSM is an assessment tool that is not as comprehensive as D&B PAYDEX®, but it still compiles both commercial and individual data to forecast whether a company will fail to meet its payments in the upcoming 12 months. Businesses should strive to avoid the “red zone” if they are expecting to obtain small business financing.

The Small Business Scoring Service (SBSS) provided by FICO® LiquidCredit® is employed by lenders when making decisions about small business loans. The FICO SBSS score is used by the Small Business Administration (SBA) for loan assessments of up to $350,000.

When granting credit, lenders often look into UCC-1 Filings. It is essential to understand the Uniform Commercial Code (UCC), even though it is not a credit agency. A UCC filing is a legal document issued by a lender when they sell assets or equipment to a company. The lender may take out a lien against the item, which is then made publicly known to protect their interests. If the business defaults on the lien, the creditor may repossess the property or asset. Having a record of defaults can adversely affect a business’s credit, making it more difficult for them to be approved for financing.

Are Business Credit Scores and FICO Scores Kept Private/Public?

For legal purposes, personal credit scores are kept confidential. However, business credit scores and FICO scores are public information and can be easily accessed by a variety of people, such as banks, auto dealers, real estate agents, vendors, and customers. Poor credit reports are dangerous to your business and may limit your ability to conduct business.

What Should I Do if I Discover an Error on My Company Credit Report?

If you ever observe any mistakes in your business credit or FICO score reports, you can reach out to numerous credit score rating agencies directly.

You should stay on top of the public financial information associated with your business, such as business credit and FICO scores. Since these scores tend to fluctuate frequently, it is recommended that business owners take the time to check them at least once every three months.

No matter how good your credit score is for your company, it is essential to keep an eye on any changes, as this has a major impact on your company’s creditworthiness. If a mistake is identified and reported, it may take several weeks or months before the credit bureaus fully remove it from your record.

It is wise to make payments on time and keep a favorable credit utilization record for numerous reasons, particularly when it pertains to having a good business credit score. 

Learn how to read your credit report here.

Can You Check Your Business Credit Score for Free?

Many online services offer business and personal credit scores, but you have to pay for them. As far as personal credit scores are concerned, credit bureaus are mandated by law to provide you with a free copy of your credit report, but there is no such law for business credit scores.

If you’re looking for a business credit report that won’t cost you, an online search with the term “free business credit report” can point you in the right direction. However, be aware of any sites that try to get your personal information in exchange for a “free report.” To ensure your security, it’s recommended that you reach out to the credit rating agencies and Dun & Bradstreet directly, as you can obtain a D&B report without any charge.

  • Obtain your Equifax report here.
  • Call 1.800.333.0505 for a copy of your D&B report.

Frequently Asked Questions

1. What Can I Do to Increase My Business Credit Score or FICO Rating?

Managing a strong business credit rating can be challenging, however, the effort is worthwhile. It may seem overwhelming at first, however, after your business is up and running, it is simply a matter of forming beneficial credit associations with financial institutions, providers, and buyers.

Ensure that all payments are made promptly or even ahead of schedule and be particularly mindful of those associated with secured assets with UCC (Universal Commercial Code) filings.

Even though a company may not currently require additional funds, it can still elevate its business credit rating by obtaining debt. Credit agencies evaluate the number of business cards that a business uses as well as any other loans that may be outstanding, in addition to how promptly they are repaid.

Most credit-rating companies prefer to see companies maintaining a reasonable amount of borrowed credit, rather than employing their full credit capacity. To prevent reaching the maximum limit on credit cards, one can consider having additional cards.

2.  What Factors Have an Impact on a Small Business Credit Score?

It is important to maintain a good business credit score, as it will remain with you forever. If payments are missed or too much debt is accumulated, this will be seen as a warning sign by the rating agencies and possible lenders. Additionally, frequent changes in ownership, restructuring, late tax filings, changing banking institutions, and moving can all cause prospective creditors to be more hesitant to provide financing.

The key to preserving a good credit score is to open a line of credit from a bank and draw on it when your business is flourishing. Demonstrating that you pay off your lines of credit, equipment loans, and credit cards in a timely fashion will help ensure that your business credit score remains high.

Thank you for reading our article. We hope you learned new ways to battle creditors and banks while protecting yourself.

We would encourage you to become a member of HigherScoreNow.com and start to leverage all the benefits of having good credit. You deserve this. 

5 Techniques to Enhance Your Credit Score and Gain Access to Better Loans

In order to be eligible for a loan, you must demonstrate that you can repay the debt to the lender. This is typically evaluated by inspecting your credit report from a Credit Bureau. This report provides the lender with the necessary information to build a thorough profile of your credit risk.

Lenders will use the information gained to see how much you qualify for and if you will be accepted for a loan amount. Various elements are taken into consideration when deciding your credit limit and loan approval. The criteria that creditors utilize to assess your borrowing capacity are referred to as the 5 Cs of Credit.

If you can master any of these five elements, then you will be in a better position to qualify for higher loans.

The 5 Cs of Credit

The 5 Cs of Credit are a set of criteria that are used to assess the creditworthiness of an individual. Understanding these 5 Cs is essential for obtaining the best possible loan terms.

When someone applies for a loan, banks and other lending institutions use the 5 Cs of credit to evaluate the borrower’s creditworthiness and overall financial situation. This system allows lenders to take into account factors such as the applicant’s ability to repay the loan, their credit background, and the risk linked with the loan request.

The 5 C’s are: Character, Capacity, Capital, Collateral, and Conditions.

Let us examine each of these aspects in more detail and explore why they are significant.

  1. Character: This is evaluated by checking the borrower’s payments and credit behavior. Loan providers will look into the applicant’s credit report, including any payments made and debts owed.
  2. Capacity: This involves the ability to pay back a loan you have requested. Lenders will investigate the amount of money coming in to make sure it is enough to handle the debt. In the event that the income is too low, the borrower may be deemed a risky choice.
  3. Capital: This is linked to the borrower’s net worth or assets. Loan providers will assess their financial situation to make sure they have enough assets to cover the loan in the event of non-payment. If the applicant holds any relevant investments, they may be seen as a less risky option.
  4. Collateral: This is the value of the assets that the borrower can put forward as security for the loan. Lenders will typically ask for collateral to reduce their risk in the case of a default. The value of the collateral will be analyzed to make sure it is adequate to cover the loan.
  5. Conditions: This is in reference to the borrower’s financial situation and the state of the economy. Loan providers will look at the borrower’s industry, the economic landscape, and other factors which may affect their ability to repay the loan.

How To Improve Your 5 Cs of Credit

Change Your Habits

Your credit report serves as a record of your financial conduct, which lenders assess in order to determine if you are reliable enough to grant a loan. If you are guilty of misusing loans, defaulting, or making late repayments, it’s time to make a change. Let’s break down 3 strategies that will increase your likelihood of loan acceptance:

  • Ensure your loan repayments are on time to show lenders that you meet your loan obligations punctually and in full. They are more likely to trust you if you do this.
  • Update your credit report regularly and get a clearance certificate once you have cleared all your loans.
  • Stay away from practices that promote bad credit like exceeding your credit limit or becoming overly reliant on loans. When dealing with credit cards, ensure you pay your bill on time, and if you can’t, at least pay the minimum amount. Furthermore, stay away from tactics like co-signing for somebody with a low credit score or taking out numerous loans at once.

Work on Improving Loan Repayment Capability

When trying to raise your credit, demonstrate to a loan provider that you are capable of settling a loan. They will take into consideration your wages, current debts, and salary to evaluate your credit capacity. Do you have a job that is likely to provide enough money to make loan payments? Are you self-employed?

Improve your capacity in the following ways:

  • Reduce Your DTI: This is the rate of your monthly income that goes toward repaying debts. The lower your DTI, the better your credit capacity. Therefore, work on increasing your earnings and paying off any outstanding debts to reduce your DTI.
  • Have Multiple Streams of Income: Are you self-employed or employed in a job that does not provide secure income? Consider multiple income streams like rental income, freelance work, or a part-time job. By exhibiting steadiness in your income, you can improve your credit capacity and raise your chances of getting approved for a loan.

Grow Your Capital

Your financial standing is what one would refer to as capital. It indicates what available assets you have that are not currently pledged to a debt. Lenders will want to be assured that you have assets such as real estate, property, investments, or money in the bank to use as collateral when you don’t have sufficient income.

What would happen if you no longer had the means to make loan payments?

Loan providers take into consideration your capital when evaluating your creditworthiness, however, it is not given to them as collateral for the loan.

In order to grow your capital, it is advisable to:

  • Set up an Emergency Fund to serve as your financial standing: Setting aside a portion of your income in a savings account for emergency use can help you avoid difficulties if unexpected expenses or financial hardships arise. This can be a safeguard against defaulting on loans or credit payments, which can have an adverse effect on your capital.
  • Be prepared to liquidate your assets: Have a ready stock of assets that can easily be converted to cash. This can be resources or other investments that you can sell in a hurry. Holding these assets allows you to display to loan providers that you have a strong economic base and are less likely to fail to make payments.

Strengthen Your Security

When a loan is taken out, collateral can be put up by the borrower to guarantee repayment. It is essential to be aware of any available collateral, especially for secured lenders. If a person has a poor credit score or financial capacity, collateral can be a helpful resource to obtain a loan.

However, in order to be accepted as a form of collateral, the lender must set their own threshold. The loan-to-value (LTV) ratio must be satisfactory for the lender.

The manner in which you enhance your collateral will be dependent on the type of collateral you possess. When you are looking to borrow with external collateral, such as for personal loans, mortgage refinance, and logbook loans, there are three ways to increase your Loan-to-Value ratio. These include:

  • Improve the worth of your collateral: If you would like to use your house as a form of security, you can make investments in renovations to lift its market value before seeking a loan from a lender.
  • Lower your debt-to-collateral ratio: Creditors focus on the amount of debt you have compared to the collateral. For instance, if you have an existing debt on your house, the ratio can be quite high as you will have less equity. Therefore, it may be difficult to acquire a larger loan.
  • Obtain a co-signer: This individual can help you qualify for a more substantial loan by using their own assets as a form of security.

Enhance Borrowing Conditions

When compared to the other 5 Cs of Credit, conditions are much more expansive. Prior to providing you with a loan, lenders will take into account factors which you have no control over. They may examine the current economic climate and the systematic risks that come with it, such as currency or interest rate risks.

In order to enhance the last C on your credit report when you take out a loan, here are some tips:

  • Have a clear goal: Loan providers want to be sure that you will be using the money for a valid reason and that you have a plan to repay it. Whether you’re establishing a business, funding your education, or making a large purchase, having a clear goal in mind for the loan can increase your chances of your loan being approved.
  • Grow your assets: Think about any resources you can use as security, such as real estate, vehicles, or investments accounts. Having these assets in your portfolio allows you to use them when you need to take out a loan.
  • Time your borrowing: The economic environment can have an effect on lending conditions, and lenders take this into account when looking at your loan application. When interest rates are low, it might be a good idea to borrow, as you may be able to get a lower rate. On the other hand, if the economy is facing a recession or high systematic risk, lenders may be extra cautious when giving out loans. Consider timing your borrowing so that you can take advantage of favorable economic conditions.

Benefits of High Credit Scores

  1. You will get lower interest rates and more attractive loan terms. This can save you thousands of shillings throughout the loan’s lifetime.
  2. You get a shorter and faster loan application process.
  3. You might be hired by an employer easily as higher credit scores demonstrate financial integrity.
  4. It increases your negotiating power with lenders. Enabling you to choose the best loan terms as most lenders will be competing to do business with you.

CONCLUSION

It is important to note that it takes sustained hard work to boost credit scores; this means keeping up with solid financial practices and handling debt reasonably. The 5 Cs can be a beginning point, but they are not the only elements a lender will look at. 

Thank you for reading our article. We hope you learned new ways to battle creditors and banks while protecting yourself.

We would encourage you to become a member of HigherScoreNow.com and start to leverage all the benefits of having good credit. You deserve this. 

4 Tricks to Boost Your Credit Score Fast

Having a good credit score helps you get lower interest rates on loans and credit cards. However, raising your credit score overnight is not always simple. You must first determine why your credit score is low before you can improve it.

Jim Triggs, president and CEO of nonprofit credit counselling firm Money Management International, Inc (MMI), tells CNBC Select that understanding the specific factors affecting your credit score is the first step towards raising it quickly. Here are some tips and tricks from Triggs and two other experts on how fast your credit score can rise and how to make it happen.

Reduce your outstanding credit card balances.

Paying more than your minimum payment each month, if you can, is a great way to chip away at your revolving debt and maintain a low credit utilization rate. Keeping your credit utilization rate low is particularly critical if you have a lot of revolving debt.

Seeing the impact on your credit score depends on how quickly creditors report the fulfilled balance on the consumer’s credit report, says Triggs. “Some creditors report immediately after the payment, while others report at a particular time each month,” she says. Credit card companies usually report your statement balance to the credit bureaus monthly, but this may vary depending on your issuer. You may call or chat online with your issuer to find out when they report balances to the bureaus.

It is better to pay off your balance each month as soon as possible. You may also make multiple payments towards your balance throughout the month to keep track of your expenditures, which makes it easier. Although it’s good  to pay even a portion of your debt off, paying off the entire amount will have the greatest and fastest impact on your credit score.

Increase your credit limit.

There are two ways to increase your credit limit: you may either ask for an increase on your current credit card or open a new one. The lower your credit utilization rate is (assuming you do not max out your card each month), the higher your overall available credit limit is. Credit utilization is the amount of credit being used relative to the amount of credit available. Before requesting an increase in your credit limit, ensure that you will not be tempted to spend more than you can afford.

Before you apply for a new credit card, do your research. Your credit score is determined by the number of times you apply for and open accounts. Every application requires the credit card issuer or lender to pull your credit report, which results in a hard inquiry and dings your credit score a few points. And be careful not to apply for too many credit cards in a short amount of time, as this may send a red flag to issuers. Issuers may have stricter terms and requirements because of the economic fallout from the coronavirus. 

There are some credit cards available for those with poor credit, but most of the top reward cards require excellent credit. The Petal 2 “Cash Back, No Fees” Visa Credit Card has no fees whatsoever, and allows applicants with no credit history to apply.

Make sure your credit report is error-free.

Checking your credit report for any errors that could be negatively impacting you can help you increase your credit score quickly. If you are able to dispute them with proof and have them removed, your score may improve.

It is important to take the time to review your credit report, as about 25% of Americans have an error on theirs. Fraudulent or duplicated accounts, as well as misreported payments, are some of the most common mistakes to look for.

According to financial educator Thomas Nitzsche at MMI, most of the clients they meet with have not reviewed their report in the last year, and are often surprised by what they find and want us to discuss with them. By going to AnnualCreditReport.com now, you can get a free credit report from the three major credit bureaus (Experian, Equifax, and TransUnion).

Request that the negative entries on your credit report be removed.

Having a lot of late payments on your credit report or an old collection account that has since been paid off showing up may be the problem. Ask to have them removed if this is the case. (And if you do have an unpaid collection account, make it a priority. Unpaid collection accounts can have a negative impact on your score.)

It may take longer and require more effort on your part, but it is worth it. Triggs recommends contacting the collection agency, debt buyer, or original creditor (depending on who currently services your account) to have a paid-off account removed from your credit report. 

It might be best to request for the account to be removed entirely, rather than just showing as paid, as this would have a more significant impact on your credit score, Triggs says. Unpaid collection account or unpaid charge-off on your credit report might prevent creditors from granting you future credit.

Doing this on your own might be overwhelming and stressful at times. You can use a credit repair company to help you out. They know the federal laws and they take charge on your behalf helping you resolve the issues you might have. 

Wrapping up

There is no one solution that fits all when it comes to improving your credit score, but you can immediately take these four steps to clean up your credit report. According to Equifax global consumer solutions president Beverly Anderson, every person’s credit journey is unique. There are many factors that affect credit scores for the majority of consumers, but they will not always have the same impact.

Thank you for reading our article. We hope you learned new ways to battle creditors and banks while protecting yourself.

We would encourage you to become a member of HigherScoreNow.com and start to leverage all the benefits of having good credit. You deserve this. 

Credit Score 101: Definition, Calculation, & How to Improve It

What is a Credit Score?

A credit score rates a consumer’s creditworthiness using a range from 300 to 850. This number indicates the risk level of a borrower. A higher credit score indicates a better borrower to prospective lenders.

Credit scores are determined by an individual’s credit history, including the number of accounts currently open, the amount of debt currently owed, the length of time payments have been made on current accounts, and other information. Lenders use credit scores to determine whether individuals are likely to repay loans on time.

Only three credit bureaus in the U.S.—Equifax, Experian, and TransUnion—are of major national significance. This trio dominate the market for collecting, analyzing, and disseminating information about consumers.

The FICO Score is the most frequently used credit score model. FICO, now known as Fair Isaac Corp., created the credit score model. Other credit scoring systems exist, but the FICO Score is by far the most common. An individual’s score can be improved in a variety of ways, including paying off loans on time and keeping your debt low.

Importance of Credit Score

Your credit score determines whether you’ll be granted a loan and the interest rate you’ll pay. Employers also check it to see whether you’re a dependable person. Service providers and utility companies may look at it to determine whether you have to make a deposit to use their service. Even landlords use this to determine if you can get an apartment or not. It goes even further, and can even affect whether you’ll get the best cell phone plans. 

Lenders frequently examine borrowers’ scores, particularly when determining whether to raise interest rates or credit limits on credit cards. Basically, your credit score can be a hammer or a lever based on how good it is. Bad scores are a hammer, as you end up paying more and missing out on so much. On the other hand, good credit is a lever as you’ll reap the benefits of low-interest rates and great deals regardless of your age or income. 

How Credit Scores Work

Your credit score can have a significant impact on your financial life. It is vitally important to lenders when deciding whether or not to grant you credit. People with credit scores below 640 are considered subprime borrowers. Subprime mortgages are often charged higher interest rates than conventional mortgages to compensate for the higher risk they carry. Borrowers with low credit scores may also require a shorter repayment period or a co-signer.

A credit score of 700 or higher is often considered very good, and borrowers with such scores may be eligible for lower interest rates and, consequently, pay less interest over the life of the loan. Scores above 800 are regarded as excellent. Credit scores are rated on a scale defined by each creditor, but the FICO model is frequently used.

The Factors That Determine Your Credit Score

Consumers’ credit histories are recorded and maintained by three major credit reporting agencies in the United States (Equifax, Experian, and TransUnion). Although the information collected by the credit bureaus may differ, five primary variables are used to determine a credit score:

  1. Payment history: The payment history is 35% of a credit score and reveals whether a person pays their obligations on time. 
  2. The total amount owed: The proportion of credit available to a person that is utilized, known as credit utilization, contributes to 30% of the credit score.
  3. Length of credit history: The length of credit history is 15%, with longer credit histories being considered less risky because there is more data to assess payment history.
  4. Types of credit: 10% of the credit score is determined in part by the ratio of installment credit, such as car loans or mortgages, to revolving credit, such as credit cards.
  5. New credit: 10% of a person’s credit score is also affected by whether he has a mix of new credit accounts, how many new accounts he has recently applied for, whether he has recently applied for credit inquiries, and when he opened his most recent account. 

If you have several credit cards, but don’t use some of them, closing those credit cards may actually negatively impact your credit score. Rather than throwing out unused credit cards, keep them safely in separate envelopes, organized by category. Go online to access and verify each card, ensuring that there are no balances and that your address, email address, and other information are accurate. 

Make sure you don’t have autopay set up on any of these credit cards. Make certain you have your email address or mobile phone number in the notification section so you are notified if something goes awry. Check them every six months or annually to ensure that no charges are made or that there are no irregularities.

VantageScore

In 2006, Equifax, Experian, and TransUnion credit bureaus created VantageScore as an alternative to Fair Isaac Corp.’s FICO Score, a consumer credit rating product. According to Equifax, Experian, and TransUnion, VantageScore employs machine learning techniques to produce a more accurate picture of a consumer’s credit. 

According to research conducted by consulting firm Oliver Wyman, the use of VantageScore has increased by about 20% annually since June 2015, accounting for about 90% of all credit scores. The FICO score, which is used by about 90% of all lenders, remains the most popular credit score. More than 12 billion VantageScores were used by over 2,500 users between July 1, 2018, and June 30, 2019, according to the most recent research. Credit card issuers and banks were the most ardent VantageScore users.

FICO and VantageScore scores differ in several respects. FICO creates a bureau-specific credit score for each of the three credit bureaus, using only that bureau’s data. Consequently, the three scores are really three distinct scores, each of which is determined by a distinct bureau. VantageScores, on the other hand, are single, tri-bureau credit scores, and each bureau uses them. 

How to Improve Your Credit Score

An individual’s credit score can rise or fall depending on new information when information is updated on their credit report. In order to improve their credit score, consumers can take the following actions:

Pay bills on time: Always ensure your bills are paid on time. If you have bad credit, you’ll have to make timely payments for six months consecutively before seeing a difference in your credit score.

Increase your credit line: Ask about getting a credit increase on your credit card accounts. This should be fairly easy if you have good standing. But once you do get an increase, make sure you are still keeping a low credit utilization rate. 

Keep your credit card accounts open: Don’t close any credit card accounts, even when you stop using the card. If you close an account, your credit score might be hurt depending on the card limit and age. For example, let’s say you have a $1,000 debt with a credit limit of $5,000 shared evenly between two cards. This puts your credit utilization rate at 20%. Closing one of the cards takes your credit utilization to 40%, negatively affecting your credit score.

Work with a credit repair company: At t times the idea of improving your credit score can feel overwhelming, and you may not even know how to improve your credit score on your own. Getting the best credit repair company to work with you will ease your stress. They’ll help negotiate with creditors and the three credit bureaus. They’ll also offer you advice to maintain a good credit score. 

Frequently Asked Questions

What is a credit score?

A person’s credit score is determined by a number from 300 to 850 which indicates their creditworthiness. Credit scores factor in repayment history, the types of loans, the length of credit history, and their debt amounts, in addition to other factors.

What is the ideal credit score to have?

Credit scoring models vary in terms of range, but scores from 580 to 669 are typically classified as fair; 670 to 739 are usually rated good; 740 to 799 are generally rated very good; and 800 and higher are usually rated excellent.

Who is responsible for calculating credit scores?

The credit reporting industry in the United States is dominated by three major players: Equifax, Experian, and TransUnion. There are, in fact, several credit bureaus, but only these three are of national significance. Collecting, analyzing, and disseminating information about consumers is what these businesses do.

Conclusion

Your credit score is one number that can either cost or save you a lot of money in your lifetime. If you have a great score, you will pay less interest on any line of credit you take out. However, it is up to you, the borrower, to maintain a strong credit score so that you can have access to more loans, if necessary.

Thank you for reading our article. We hope you learned new ways to battle creditors and banks while protecting yourself.

We would encourage you to become a member of HigherScoreNow.com and start to leverage all the benefits of having good credit. You deserve this. 

15 Interesting Bad Credit Stats You Need to Know

Your financial well-being is heavily dependent on your credit reports and credit scores. More than 200 million Americans have credit reports at the three credit reporting agencies. Curious how you compare to them? Here is your chance to see—we’ve collected 15 bad credit stats that might surprise you.

With these 15 bad credit statistics, you’ll also learn about common problems that hold down credit scores, as well as some reasons you should strive to improve your credit scores.

Only 11% of Americans have the lowest FICO scores.

It’s true that credit problems are fairly common. However, having severely low credit scores is not common. According to FICO, the corporation that developed the FICO credit scoring system, only 11.1% of U.S. consumers have credit scores lower than 550. . (Scores below 580 on the 300-850 FICO scale are very poor.)

Those with low credit scores face many obstacles when compared to those with higher scores. For example, those with very low credit scores may have a difficult time obtaining financing, depending on the lender’s approval requirements. Consumers with the lowest credit scores can still qualify for a loan, credit card, or other types of account, but they will pay significantly higher interest rates and receive less attractive borrowing terms. 

If you want to look at this from a glass-half-full perspective, the best rates are usually reserved for individuals with FICO scores of 700 or higher. 89% of the population has FICO scores of 550 or higher. Credit is definitely available for those scoring in the 500s or 600s, although it may not be offered at the best rates.

More than 20% of Americans have a subprime credit score.

A subprime credit score, according to Experian, is a FICO Score between 580 and 669. 18% of Americans have a credit score in this range. Credit scores in this range (580-669) are not as detrimental as those with a score of 580 or less. You may still be able to get financing at a better rate than those with major credit issues, but s.you may still be unable to qualify for certain types of financing, such as premium credit cards. 

More than 43% of consumers now have excellent FICO scores.

More than 22% of U.S. consumers have FICO scores over 800, and 43% of people have scores over 750. Those are elite credit scores, by any definition. You’re not alone if you have bad credit, but you should work hard to be part of the majority. 

There are several common characteristics among consumers with these excellent credit scores. If you want to join this group, these are the good habits you will have to practice:

  • Always pay your bills on time at all times. 
  • Keep your credit utilization (balance-to-limit ratio) low on your credit cards. 
  • Get a good mix of different types of accounts on your credit report, i.e. installment loans, revolving credit cards, etc. 

These financial best practices will help you achieve a credit score that ranks among the elite 43% of the population.

17% of the population has been at least three months late on a loan in the last two years.

FICO and VantageScore credit scores are designed to estimate how likely you are to default on a credit obligation in the next 24 months. Being 90 days late on credit cards, automobile loans, mortgages, or any other account on your credit report is a significant problem because you’ve already demonstrated to credit scoring models that you’re prepared to go well beyond the due date. 

90-day late payments can really hurt you, especially in the beginning. Your credit score may be severely damaged. However, the same 90-day late payment won’t affect everyone’s credit score the same way..If you have a higher score, your credit report will suffer more if you make a new 90-day late payment because you have more points to forgo. Someone with poor credit will not suffer the same consequences because they have already forfeited so many points. Thankfully, if you avoid delinquency in the future,, the late payment’s impact will dwindle over time.

Nearly 20% of consumers have been 30 days (or more) past due in the last 12 months.

It’s best to pay your creditors on time to maintain a strong credit history. Conversely, paying your creditors late is one of the fastest methods to ruin your credit rating. Your payment history accounts for 35% of your FICO score, which makes it the most important factor.

A late payment, even a single one, can have serious repercussions. For some consumers, a new 30-day late payment may result in a credit score drop of 30 points or more, depending on when the late payment occurred and whether the account was still past due.

According to the FTC, 20% of consumers have an error on at least one of their credit reports.

It is critical to take responsibility for your poor credit score if you make a mistake. Admitting that there is a problem may be difficult, but doing so puts you in control and should encourage you to improve your credit management habits.

However, your credit might be damaged due to someone else’s mistakes, or a credit bureau might accidentally mess up and report inaccurate credit information. According to the Federal Trade Commission’s credit reporting accuracy study, 20% of consumers have at least one error on one of their credit reports. That is why the Fair Credit Reporting Act’s dispute provision exists. Consumers who think their credit reports contain errors may dispute them and have them corrected for free.

Luckily, there are also credit repair companies that can help you dispute any inaccurate information on your credit report and make the process stress-free for you.  

Around 15% of U.S. consumers don’t have a FICO score.

Having no credit score can negatively affect you when you want to apply for a new credit card or loan. You may not be aware that having bad credit could keep you from progressing in many situations. After all, lenders might be hesitant to provide you with money when they have no idea how well you managed your credit obligations in the past.

Your report must meet certain minimum standards to qualify for a FICO credit score. These include;

  • An account older than 6 months that you can prove without a doubt belongs to you.
  • No deceased notation on your credit report. 
  • Have one undisputed account updated within the last 6 months. 

According to FICO, around 15% of U.S. consumer credit reports do not meet these requirements and thus cannot receive a FICO Score. VantageScore, a competing scoring model to FICO, has a more liberal scoring threshold, so more people have a VantageScore credit score than a FICO credit score.

NOTE: Some personal finance celebrities boast of having a “zero” FICO Score which is completely impossible. There is no such thing as a credit score of zero. Scores range from 300 to 850.

Every few seconds, someone’s identity is stolen.

Credit scores can be damaged not only by poor credit management and credit reporting errors, but also by fraud and identity theft. Every two seconds, someone becomes a new victim of identity theft.

It is crucial to act immediately if you think you have been victimized by identity theft. You can either place fraud alerts on your credit reports or freeze them entirely. You may even choose to utilize both credit protection tools simultaneously if you prefer.

Credit freezes are much better than fraud alerts because they are proactive and prevent creditors from seeing your credit reports and scores. Using this approach, you can prevent a new account from being opened rather than being informed after it has been opened.

43% of consumers haven’t checked their credit scores in the last year.

Credit reporting errors and identity theft are prevalent issues. Checking your three credit reports from Experian, TransUnion, and Equifax can help you detect them. It’s a smart move. A significant drop in your credit score, after all, might indicate that something is wrong with your credit reports. Your credit information is so important that reviewing your reports and scores once a month is ideal.

Unfortunately, the number of people who neglect to monitor their credit is significant. According to an annual survey by the Consumer Federation of America and VantageScore Solutions, 43% of consumers have not checked their credit scores in the last year.

You can check your three credit reports for free once every 12 months at AnnualCreditReport.com. 

Children can also have poor credit.

You work hard as a parent to keep your child safe and healthy. You instruct your child how to brush their teeth, eat their vegetables, and avoid sticking their fingers in electrical sockets. You may not realize that your child’s credit reports also need protecting.

Normally, children under 18 shouldn’t even have credit reports or scores. For example, your son or daughter may not have a credit report until after they turn 18 and apply for a student credit card or a loan. Conversely, you may add them to your existing credit card account as an authorized user to establish credit sooner.

Sadly, there is another reason a credit bureau may create a credit file for your child. Children can be victims of identity theft. According to Javelin Strategy & Research, over one million children were victims of identity theft in 2018. Fraudsters can create an inquiry-only credit report when they use a child’s name to apply for credit. This is because it contains no negative information, so it can be used to apply for fraudulent credit.

It is important to be on the lookout for warning signs of child identity theft, such as unexpected bills or collection calls on behalf of your child. It is also possible to freeze your child’s credit reports with the three credit bureaus for additional security if you wish.

The average credit card balance is more than $5,000.

Using your credit cards and paying them off monthly is the best way to protect your credit scores and bank accounts. Many Americans, however, do not follow this important rule of thumb. According to Experian, the average credit card balance among U.S. consumers was $5,221 as of Q3 2021.

You may allow your credit card balances to creep upward for several reasons. You may have used credit cards to help you through a financial emergency or to help you make ends meet if you lost your job or didn’t follow a monthly budget. Or you may simply have a bad habit of overspending.

It doesn’t matter what caused your credit card debt; you should begin chipping away at those balances as soon as possible. For example, you may want to consider consolidating your credit card debt with a personal loan or balance transfer offer.

62% of adults have accrued credit card debt in the last year, according to the NFCC.

Despite the fact that credit card accounts can help you build your credit report and credit score, credit scoring models such as FICO and VantageScore place a great deal of emphasis on how you manage your credit cards. 

Using your credit cards irresponsibly by not paying off your balances every month can be a costly choice. Your credit scores will likely decline if the balance-to-limit ratios on your cards increase.

According to the National Foundation for Credit Counseling, 62% of Americans say they have had credit card debt in the last year. If you are one of these people, you should try to change your ways as soon as possible.

Paying down your credit card debt and lowering your credit card utilization rate may improve your credit score. You will also save money by avoiding costly interest charges on your credit card debt.

At least 25% of consumers with low incomes do not understand how to improve bad credit.

Having bad credit is tough to break out of. A rudimentary knowledge of credit scores is required, which is not provided at any level of education. A recent survey from the Consumer Federation of America and VantageScore Solutions Inc. indicates that at least one-quarter of low-income consumers (those who earn less than $25,000 per year) do not possess the knowledge they need to raise their credit scores.

According to the 10th annual credit score survey by the Consumer Federation of America and VantageScore Solutions, certain consumers may be hindered by credit score misconceptions. The survey reveals that low-income borrowers are unfamiliar with the following aspects of credit scores:

  • 25% don’t know that mortgage lenders use credit scores. 
  • 30% are not aware that low credit balances boost their credit scores.
  • More than 50% don’t comprehend that consumers have more than one credit score. 

Maybe it’s time to bring credit education into the classroom, so that everyone can be armed with the knowledge needed to responsibly manage a credit score.

Having a low credit score can cost you over $100,000 more for a mortgage.

Having good credit scores can help you obtain attractive rates and offers when you apply for financing. The same is true for mortgage loans. It is surprising to learn just how much lower credit scores can cost you. The extra interest charges can add up to well over $100,000 on a single mortgage loan.

For example, over the life of a $350,000, 30-year fixed rate mortgage with a 2.523% APR, you would end up paying $149360 in interest. That APR rate requires a FICO score of 760 or higher. If your FICO Score is below 640, your interest rate will be 4.112%. At that rate, the total amount of money you’d pay in interest would be $259,707.

That’s $110,347 more you would pay to finance the same house over the same length of time.

Of course, this assumes that you will pay off a 30-year fixed-rate mortgage over 360 months rather than paying it off early or selling your home. It also assumes that you will not refinance your loan to take advantage of a lower rate.

On average, credit scores are rising.

The good news is that credit scores in the United States have been rising over the last nine years. The average FICO score is currently 706. A good credit score for the average U.S. consumer is one that is considered to be in the range of 700 to 799. However, it is up to your lenders to determine what constitutes a good credit score.

Only 8% of consumers with great credit scores are predicted to default on their credit obligations in the future. If you work hard to repair bad credit and boost your credit scores into the good range, you will probably be granted much better offers when you seek new loans.

What do these stats tell you?

One, you may be denied certain types of financing if you have bad credit. Renting an apartment, getting a new cell phone plan, or even getting a new job can be difficult if you have a poor credit history. You may be forced to pay higher interest rates, higher insurance premiums, higher deposits for utilities, and more if you have low credit scores.

Having bad credit is not uncommon, but you should not view it as an irreversible situation. Many people have had credit problems and worked hard to alter their situations. Even minor advancements along the path of improving your credit score can significantly impact your financial well-being. However, it can be a long, difficult journey. But even the little steps like  raising your credit score from 550 to 600 is something to celebrate. 

Reach out to us today if bad credit is holding you back. We can help by removing and challenging the negative items that affect your credit score. 

Thank you for reading our article. We hope you learned new ways to battle creditors and banks while protecting yourself.

We would encourage you to become a member of HigherScoreNow.com and start to leverage all the benefits of having good credit. You deserve this. 

Scheduling your free consultation today! 

10 Steps to Repair Bad Credit

You might be experiencing bad credit if you’ve got an overdue student loan, a high credit card balance, a lot of overdue collections accounts, or even have been foreclosed on. Lack of good credit is a barrier to many of life’s most important milestones. You may be denied a credit card or even forced to seek assistance for an auto loan or mortgage, and the interest rates offered to you may be substantially higher.

Thankfully, a credit repair company can help you get your credit back on track. They will help you negotiate settlements with creditors, remove inaccurate information, contact collection agencies, prepare letters to credit bureaus, offer advice and support to repair your credit, and update your account. They work with credit reporting agencies on your behalf and ensure that positive changes are reflected on your credit reports. 

They are experts in credit law and well-versed in consumer protection laws and statutes such as the Fair Credit Reporting Act (FCRA), the Fair Debt Collections Practices Act (FDCPA), or the Fair Credit Billing Act (FCBA). 

Keep in mind that bad credit doesn’t have to be a permanent scar on your record. Instead, it can be a life lesson, allowing you to correct your mistakes. If you’re not interested in using a credit repair firm, you can also greatly improve your credit score on your own if you simply have the know-how, the patience, and the determination to stick to your budget. 

Here are 10 techniques for dealing with your bad credit.

1. Check Your Credit Score and Credit Reports Regularly.

To begin do-it-yourself credit repair, you must get copies of your full credit report from all three credit bureaus: TransUnion, Equifax, and Experian. Credit reports and scores are two separate (but interconnected) things.

Credit Score

Your credit score is used by many lenders to determine how much of a credit risk you are. The higher the number, the less risky you are as a borrower and the more favorable of a loan you can receive. Someone with a high credit score may be able to borrow more money and receive a lower interest rate. Your credit score is used to determine your ability to make payments and your eligibility for loans.

There are five factors that comprise your credit score, and they are weighed in different proportions when calculating the final number:

  • Payment history (35%): Always pay your loan on time for a pristine history. 
  • Credit utilization ratio (30%): Huge balances on your credit cards will hurt your score. 
  • New credit accounts (10%): You get a hard credit inquiry whenever you apply for a loan or new credit card. This lowers your score temporarily. 
  • Credit account mix(10%): Having various loan types (e.g. mortgages, auto loans, credit loans, etc.) helps you have optimal credit. 
  • Length of your credit history (15%): The longer your credit accounts have been open, the better your credit score. The longer you maintain a good credit history, the better your score.

Having a credit score above 700 lets you do pretty much anything a person with a higher score can do. Actually, if you have a higher credit score, let’s say 850,  lenders know that they are unlikely to make much money from you, so it can work against you. 

Credit Report

Your credit report shows your credit history in detail. You can check if you’ve made any loan payments late or if you’ve had any late payments in the past. It’s important to check your credit report every now and then to ensure that there isn’t an error on your account. 

You can check your credit score and credit report for free through reputable free credit score tracking apps such as Credit Karma or Credit Sesame. 

2. Dispute Any Errors You Find

The next step in credit repair is to dispute incorrect information on your credit report. While errors aren’t common, they do occur. It’s worth cleaning up any small errors you do see, but don’t try to correct accurate information.

You should also check your identity information (including your Social Security number, the spelling of your name, and address) and credit history to see if there are any problems with your credit.

Make a copy of the report and highlight the errors if you notice any on the list of credit cards, outstanding debts, or major purchases. Make copies of your bank statements next, because the credit bureaus won’t act without proof.

In the letter, notify the credit reporting agency about the error and provide a copy of the report. Share how the report is incorrect and include enough evidence to support the claim. Sending this letter by certified mail is a good idea even though some Credit Bureaus now allow you to submit disputes online.

You must send a letter to the reporting agency asking for a response within 30 days. You can always get the help of a credit repair company to straighten things out for you. 

3. Stick to a Budget and Don’t Go Beyond It

Make sure you’re not spending more than you earn, no matter how painful or scary it may be. You need a budget. This may be extra difficult (though maybe even more necessary) for people who don’t get a consistent income throughout the year. For example, if you’re a restaurant server, an Uber driver, or a freelance writer, your income may vary from month to month, so you will need to budget extra.

Review your tax returns for the past two years to get a sense of how much money you take home in a year. Subtract your regular monthly expenses from your current income to get your starting point. Next, estimate your monthly spending habits for other expenses such as gasoline, groceries, and entertainment. Create a limit, based on your income, of what you can spend in each of the different categories of expenses. Resist impulse purchases.

4. Pay Your Bills on Time

Make sure you pay all your bills on time. Missing a payment accounts for 35% of your credit score. That’s heavier than any other factor. Missing a single payment on a credit card can knock down your credit score significantly. To improve your credit score, paying your bills on time is the most important thing you can do. Even if you are only paying the minimum, your credit score will improve. 

To prevent damaging your credit score,  make as many bills as possible autopay. Even if you normally pay your bills on time, autopay is still a good safety net if you somehow forget.

Some bills might not be eligible for autopay. Make yourself a number of reminders if you fear you will forget about these. For example, you can set a mobile notification a week before the due date asking yourself to pay early—and another late notification on the due date. If you’re really concerned, put sticky notes on your bathroom mirror reminding you to pay. It is critical.

5. Pay Off/Down Credit Card Balances and Other Debts

Avoid being charged high-interest rates by paying off your credit card in full before each due date. You may not always be able to do that, but you must develop a plan to clear your debt across multiple accounts. It is not bad to focus on the debts that cost the most to pay before tackling debts that cost the least.

When you’re making no progress at all on your five credit cards draining away your bank account in the form of minimum payments and interest charges, it can feel like you’ve got nothing to show for your efforts. Prioritize paying down the smallest loan until it’s finished, then you can focus on the next smallest loan. Your debt decreasing can also help your mental state.

6. Keep Track of Your Credit Utilization Ratio.

Using more than 30% of your total credit is a bad idea. Credit utilization accounts for 30% of your credit score. In short, 30% of your credit score is based on the amount of credit you are using vis-à-vis the amount of credit that you have available to you. Consider the following example: You have a $10,000 credit line on one credit card and a $5,000 outstanding balance. In this situation, your credit utilization is 50%.

A good credit utilization ratio is 30% or less. If a lender sees you using 90% of your available credit, it may indicate financial trouble. Try to pay off as many of your large purchases as possible to prevent exceeding the 30% credit utilization threshold.

7. Don’t Close Your Old Credit Cards

Even if you don’t use a credit card, it may still be worth keeping an account. Your credit score is determined by the proportion of your debts that are currently outstanding. This is known as your credit score’s “importance factor.” The longer the average age of your debts, the better your credit rating.

For instance, if you opened your first credit card four years ago, the average length of your credit history is four years. If you open another credit card today, the average length of your credit history will be two years. And if you want to close your first card, the average length of your credit history will be one day. The accounts that you close in good standing will remain on your credit report for several years, but the impact on your credit score when the account is removed will be felt. 

Don’t just close your credit card if it no longer suits your lifestyle. Keeping it open will help preserve the average age of your loans. It’s smart to keep a credit card around if you don’t have to pay an annual fee. However, if you don’t use your card, it’s probably not a good idea. You can call your bank to switch to a no-annual-fee version of the card.

8. Ask for Help

You can get the help of a professional credit repair company to improve your credit score. Inaccurate data, blemishes, and reporting mistakes can all have a negative effect on your credit score. Also, late payments, collections accounts and charge-offs can have the same dramatic effect. A poor credit score not only affects your ability to get a loan but also get employment in some cases. A credit repair company comes in to help you get everything on track. They are skilled negotiators, who know all credit laws and can offer you ongoing support and advice.

If you must, lean on those with better credit. It still is possible for you to achieve some of the greatest milestones in life even if your credit score is holding you back. Ask family members to assist you in improving your score if you need help buying a house or car.

An authorized user card is one way to get your own good credit history on someone else’s credit report. It’s an injection of healthy credit habits into your credit score. They don’t even have to give you the authorized user card, they can just shred it and allow you to reap the benefits of their good behavior secondhand.

You may want to consider asking a relative with good credit to cosign with you if you want to get a new loan. For instance, if you want to apply for a debt-consolidation loan but are not qualified, a cosigner can help you out. In this case, if you default on the loan, the family member will be responsible for the bill.

9. Do Not Apply for New Credit Cards

Even if you were offered a sign-up bonus for a new credit card, resist the temptation to open one. Each time you ask for a new loan, the lender will scrutinize your credit to determine if you’re worthy. This is known as a “credit check.”

There are two kinds of credit checks: soft and hard credit pulls. A soft credit pull has no adverse effect on your credit score, as it’s used to pre-approve loans for any potential customers. Hard credit pulls, on the other hand, can lower your credit score temporarily. Lenders use this to decide whether they can extend the loan to you. 

Credit scores are likely to plummet dramatically if you apply for new credit too frequently, although you might see a rebound within a month or two. Frequent credit inquiries are viewed as a warning sign by lenders. They don’t want to see lots of inquiries because it can reflect that you are desperate for money.

10. Use Credit-Building Tools

To get back on track, use available credit tools to help you. There are unique ways to build your credit on the internet. You can get apps that help you build credit by offering various types of loans—each of which you pay down monthly. You’ll find some that even send you back the initial term of the loan, minus the interest rate and a small application fee, at the end of the term. 

When you make a payment each month, good behavior is reported to the Credit Bureau and your credit score and profile may improve. The initial application might lower your credit score, but if you make all payments on time (essentially to yourself), it will increase.

You can also improve your credit by obtaining a secured credit card from a bank. These cards are issued to people with poor credit because they are effectively zero risk for them. To put it simply, you hand over money to the bank and they give you a credit card with a matching credit limit. For instance, if you give the bank $2,000, you’ll receive a credit card with a $2,000 limit. Should you neglect to repay your debts, the bank will keep your money. When you graduate from a secured credit card, the bank will return your money.

Wrapping Up!

It takes tremendous willpower to climb out of debt, but you can do it. Make sure there aren’t any errors on your credit report and dispute them with the credit bureaus. Even if it’s just the minimum payment, make sure you pay all your bills on time. Starting with the smallest credit card balance, focus on eliminating credit card debt as quickly as possible. Keep your credit utilization low, and keep all your credit cards open and in a sock drawer, if you must, to remove temptation (as long as they don’t have annual fees).

There really is no quick credit fix. However, if you plan to take on a big debt or buy a new home, it’s worth the effort. You’ve also got credit repair companies like High Score Now to help you out.

Thank you for reading our article. We hope you learned new ways to battle creditors and banks while protecting yourself.

We would encourage you to become a member of HigherScoreNow.com and start to leverage all the benefits of having good credit. You deserve this.