The average price of a property in the United States is $300,000. The costs of earning a college diploma can easily exceed $100,000. A new car may even cost more than $30,000.
Did you know you can save a great deal of money on these typical costs by maintaining a good credit score?
A good credit rating decreases the cost of a car loan by 10% and reduces the amount of interest paid on college tuition by half. It will give you leverage when seeking employment. Studies have shown that one in ten people are denied job positions due to their bad credit. This is common, especially with employers in finance and insurance industries who are known to check an applicant’s credit history and use it as a measure of gauging how he or she can perform their job functions.
Read on to find out what a credit score is, its components, and why a good credit score is important.
What Is a Credit Score?
Your credit score is a numerical rating ranging from 300 to 850 that shows lenders your financial risk. In other words, a lower score suggests that you might not be a reliable borrower.
Companies use different categories to classify risk, but generally the spectrum looks like this:
A low credit score can lead to being denied access to loans and can prevent you from leasing out apartments. But that’s not all. It can also be costly—even if you are granted a loan, your interest rate will be higher compared to others with better credit scores.
How Do You Calculate a Credit Score?
The FICO method is often used to calculate a credit score, which is based on the data collected by the three major credit bureaus in the United States: TransUnion, Equifax, and Experian.
This method uses five key factors when determining an individual’s score:
Payment history – 35 percent: This is the most critical factor in your credit score, as it tells lenders if you have a history of paying off your debts on time.
Amounts owed – 30 percent: A large debt is not necessarily detrimental to your credit rating. FICO analyzes your “Credit Utilization Ratio,” or the percentage of credit you have currently in use. So, if you have a credit limit of $1,500 and a balance of $1,400, it might negatively affect your score.
Length of credit history – 15 percent: Generally, the more extended your credit history is, the better it is for your rating. Don’t be discouraged if you are just starting to build your credit history; you can still maintain a good score by paying attention to other criteria.
Credit mix in use – 10 percent: This criterion evaluates the types and number of credit accounts you have. It’s a good idea to maintain credit accounts, but don’t open one you don’t plan on using.
New credit – 10 percent: Obtaining too many new lines of credit in a short period can have a negative impact on your credit score. Despite rumors that credit inquiries are damaging, they usually have little to no effect.
It’s important to note that credit scores are only one element that loan providers examine. They will likely look at your wages, debt-to-income(DTI) ratio, and how long you have been employed, together with your credit score, prior to granting a line of credit.
How Can I Get My Credit Score?
Every 12 months, you have the right to obtain one credit report from each of the three bureaus without charge. To gain access to your credit score, though, it is likely that you will be required to pay a fee. However, there are banks that offer free credit scores as part of their membership benefits. Alternatively, you can purchase your score directly from FICO or find a credit report monitoring service that appeals to you and buy a subscription.
Did you know, up to 80% of credit reports have serious mistakes? You need to pay attention to all details on your report. If there is an error, services like HigherScoreNow provide credit auditing services at a small fee to get erroneous information on your credit reports corrected.
Why Should You Want a Good Credit Score?
It will enable you to rent out an apartment easily. According to Experian, the minimum credit score you need to qualify for an apartment is 620. However, more strict property management companies require a credit score above 700. A bad credit score will increase your security deposit and may require a cosigner.
It will enable you to get the best rates on cars and homeowners insurance, saving you cash that can be used for other expenses.
You will get low-interest rates on personal loans. Negative credit can lead to higher interest rates and even make it hard to secure a loan.
It will develop your reputation and increase the chances of an employer hiring you.
Bottom Line
A good credit score impacts nearly every aspect of your life.
Do you need support in building your credit score?
Obtaining a credit card, car loan, or mortgage can be particularly difficult if your credit rating isn’t up to par and, even if you qualify, you may still have to pay a higher rate of interest. Plus, a poor credit score can influence a job search or apartment hunt as employers and landlords tend to prefer those who have proven themselves to be financially dependable.
The consequences of having a low credit score can stretch quite wide. But you don’t have to let poor credit history get in the way of your long-term financial goals. Let’s evaluate the main implications of a bad credit score.
Fewer Credit Card Options
Those with poor credit scores may find that they have fewer credit card choices available and interest rates may be higher.
Individuals with lower credit scores may find credit cards available to them, but these will not have the same advantages as the top credit cards accessible to those with higher credit ratings. The interest rates on these cards can be as high as 29 per cent, in contrast to the current average of roughly 17 per cent. When your credit score is good, there are lots of great credit card choices available to you with lower interest rates and beneficial cardholder perks (like travel points).
Increased Cost of Insurance Coverage
Generally, credit scores are utilized to figure out how likely it is that a person will be delinquent on their credit. This means that the lower your rating is, the greater chance the lender thinks that you will neglect to make a payment. When buying insurance, you also have an insurance score that resembles a credit score (and relies upon much of the same info), but it also considers how prone you are to submit a claim.
Much like a credit score, an insurance score considers your payment history, total debt, credit history duration, new credit, and credit mix to determine the cost of your policy. Generally, the higher your insurance rating, the lower your insurance premiums will be. It is worth noting, however, that while credit scores and insurance scores are similar, they are not necessarily the same.
Pricier Car Loans
When applying for an auto loan, your credit history will have an impact on your success in both acquiring a loan and the interest rate you are offered. Those with good credit can often find auto loan rates as low as 4.19 per cent, while those with poor credit may have to accept rates as high as 20 per cent.
An Increase in Mortgage Interest Rates
Mortgage providers tend to worry that those with a poor credit background will be unable to meet the payments on a mortgage. There is no specific credit score that will immediately stop someone from obtaining a loan, but having a low score can make it difficult to find an issuing lender. Even if a loan is acquired, a lower credit score often leads to higher interest rates, meaning the overall cost of buying a home is much higher.
Steep Rent Rates
When assessing prospective tenants, some landlords opt to conduct a credit check in order to judge whether the applicant is financially reliable and likely to pay rent on a regular basis. They will be allowed to view the credit report, but not the score itself. Additionally, they can view the portion of the credit report that displays the payment history and determine if the person has ever been evicted in the past, which could affect their decision.
Those with a lower credit score may find it more feasible to rent from a landlord with a smaller portfolio, as large property management companies are typically more likely to do a credit check. This could result in the need for a larger initial payment. A co-signer with a good credit record might give a landlord assurance that the rent will be paid each month.
Security Requirement for Utilities
Security deposits are sometimes requested by utility companies for service activation. These amounts are paid up front as a guarantee that all bills will be paid in full. Therefore, customers are often required to pay a certain amount prior to the start of service.
When signing up for utilities, the company looks over your credit report, particularly your payment history. If you have a bad track record with payments, they may require a deposit to set up your account.
The Federal Trade Commission (FTC) stipulates that utility companies cannot require deposits from some new customers and not others. However, many providers waive deposits based on meeting their credit criteria. Thus, the lower your credit score is, the more probable it is that you will need to pay a deposit to open an account. Additionally, some utility companies may accept a letter of guarantee, which is a document from someone who has consented to cover your bill in the event you are unable to make the payment.
Rejected Job Applications
Attempting to get a job and having unsuccessful applications can be a discouraging experience. Nevertheless, it is important to keep in mind that failure is a natural part of the process and that one should not give up. Learning from the mistakes made and continuing to apply for job opportunities is the best way to get closer to achieving your goal.
When looking for a job, a person’s credit score can be a deciding factor in whether or not they are hired. Employers may look at an applicant’s credit history to get an idea of how dependable and trustworthy they are. If the credit report shows an individual has had difficulty with payments or has a history of not paying back loans, this can be seen as a warning sign to employers that they may not be reliable employees.
Starting a Business Can be a Challenge
You often have to spend money in order to make money, especially if you’re starting a business. Unfortunately, if your credit score is low, it can be difficult to obtain a business loan or credit card with appealing rates. Even if you can get a loan with a low credit score, you are likely to receive a lower loan amount and higher interest rates than if you had a better credit score.
So, to sum up:
Having a bad credit score can be a hindrance when applying for credit cards, loans and mortgages, and can even have an impact on your job prospects. However, there are multiple ways to improve your credit history and build your credit score. Start by making all your payments on time for every credit card and work on paying off old debt. Applying for a secured credit card or personal loan is another way to build up a positive credit history and increase your available credit. You should see an improvement in your credit score as you practice good credit habits and use credit responsibly.
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.
Developing a positive credit record has many advantages, with one of the most significant being that it can help you to save money. The consequences of having a low credit score are far-reaching; not only does it make it harder to take out loans, but it can also make it more difficult to find affordable housing, get affordable insurance, and even secure a good job.
It is important to be aware of the consequences of having a low credit score and the expenses that can be avoided by boosting one’s credit rating.
How Can One Recognize Bad Credit?
Beauty is in the eye of the beholder Though FICO has established numerical boundaries for various credit scores, some loan providers may have their own standards to assess whether a person has a low score.
If your credit score is lower than 580, it is usually seen as having bad credit. However, the opinion of certain lenders may vary according to their own assessment of credit risk.
What Are the Repercussions of Having a Low Credit Score?
The consequences of having a low credit score can be far-reaching and, in some cases, unexpected. The following are some of the most costly ways in which having a poor credit rating can have a financial impact.
Increased interest rates
When your credit score is low, it can be hard to be accepted for financing, such as a loan or credit card. If you do manage to get approval, you will likely have to pay a much higher rate of interest than someone with a better credit score. Personal loans for those with poor credit can be expensive, particularly when it comes to payday loans. Even with an installment loan that is paid back over a year, the interest rate can be quite high.
The gap between mortgage loan interest rates – say, 6% versus 4% – might not appear to be much initially. Nevertheless, over the span of 30 years, it could cost you a considerable amount of money if you are unable to refinance at a lesser rate in the future.
Costlier insurance rates
Most home and auto insurance providers rely on a credit-based insurance score to calculate policy premiums. Research has proven that individuals with a poor credit rating tend to file more insurance claims than those with a good or excellent credit scores.
Todd Christensen, an accredited financial counselor and education manager at Money Fit, a nonprofit organization that provides debt relief services, states that among many other risk factors, previous tickets and claims, age, gender, place of residence, and marital status are taken into account.
It’s not likely that a poor credit score will be the only justification for a rate hike, yet it can still prevent you from qualifying for a more favorable rate. Depending on the company, the circumstances, and other factors, leaving some money on the table annually is a possibility.
Certain financial services become unavailable
In order to qualify for certain financial products, it is necessary to have a good or excellent credit score. For instance, rewards credit cards, which can be quite lucrative with the potential of thousands of dollars in rewards and benefits, are usually not available to those with a bad credit rating.
Not having a rewards credit card does not guarantee that you will be paying more. However, by not taking advantage of the benefits they can offer, you are not as financially secure as you could be. You won’t be eligible for other offerings such as 0% APR promotional auto financing or unsecured personal loans.
Lost employment opportunities
For those who are employed in finance or the public sector, a credit assessment may be necessary for certain positions. Poor credit may indicate a financial vulnerability for those who are entrusted with money or possess a security clearance. Depending on the job and potential salary increase, having a negative credit report can be very detrimental.
In the majority of cases, a credit check is not a requirement for job applications in other industries, so whether or not it will have a bearing on your job search is uncertain. It’s impossible to work out exactly what the financial damage of a bad credit score will be, but in some cases, it can prevent people from achieving economic stability.
Why People with Poor Credit Ratings Pay More
In order to determine the interest rate for a loan or credit card, lenders employ a risk-based pricing system. Those with a good or excellent credit history are usually given the most favorable terms as they have demonstrated their capacity to pay off the debt in its entirety.
People with a history of poor credit may have difficulty in making payments on time. Consequently, lenders usually require a higher rate of interest to make up for the increased risk associated with providing credit to those with bad credit.
It’s not always the case that people with poor credit got there due to a lack of responsibility; life events like job loss, medical bills, or divorce can also negatively affect one’s credit. However, it is not possible for the majority of lenders to take into account each unique instance, so they have to depend heavily on your credit score and the details in your credit report without the full understanding of the context.
Financial Institutions That Work With Individuals Who Have Bad Credit
It is important to note that just because your credit is poor, it doesn’t necessarily mean that your loan application will be refused. There are several financial institutions which specialize in accommodating individuals with bad credit.
It is important to be aware that the interest rates for these types of loans are typically high. Additionally, for auto and mortgage loans, you could be required to make a substantial down payment. As an example, OppLoans offers installment loans with an APR as high as 199%, making them a more appealing option than payday loans, but still expensive.
No minimum credit score is necessary to be eligible for a personal loan from OneMain Financial, although the highest APR is 35.99%. However, not all applicants will qualify and some may need to provide collateral as security for the loan.
If you are in the market for an auto loan,there are also numerous lenders who may be able to offer you financing. However, if you are trying to obtain a mortgage loan, it could be beneficial to work on increasing your credit score before applying or finding someone to cosign for you.
How to Boost Your Credit Score
To reduce the cost of having poor credit, focus on improving your credit score. This can not only provide lower interest rates, but also provide access to better financial products, housing rentals, or employment opportunities. Establishing a better credit history is possible by taking the following steps:
1. Evaluate your credit rating and review the details
Before taking any action, it is essential to identify where to direct your energies. A great starting point is to examine your credit score with a no-cost service such as Credit Karma or Discover Credit Scorecard. This will give you an indication of where you are currently at and enable you to follow your advancement over time.
By visiting AnnualCreditReport.com, you can access a free version of your credit report from all three of the major national credit reporting agencies. By having a copy of this report, you can evaluate it and identify the areas that need to be improved.
2. Search for incorrect data
It’s essential for individuals to look over their credit report periodically to guarantee that nothing inaccurate, unverified, or unfair is showing up and negatively affecting their credit score. If you come across an inaccuracy, you can file a dispute with the credit bureaus, who will collaborate with the creditor to verify the tradeline. Utilizing a credit repair company is an option as well, although it usually entails a cost for something that can be done without any expense.
Keep in mind that these options are only effective when dealing with incorrect, unsubstantiated, or unjust data.
3. Target problem areas
No matter the situation, there are certain credit issues that cannot be eliminated, such as a bankruptcy or foreclosure that has recently occurred. But you could still discover tasks that you can dedicate your attention to.
If any of your accounts have payments that are overdue, you could try to make them current as quickly as you can. Late payments will remain on your credit record for a period of seven years, but switching their status to ‘paid as agreed’ will have a big, positive impact.
To avoid having a collection account or a large balance on your credit card, it is advisable to pay it off as soon as possible. In order to identify the necessary steps to take, it is important to analyze your credit report to understand what needs to be done.
4. Look into a loan for building credit
Making progress in dealing with negative items on your credit report is critical for increasing your credit score, but it’s also essential to concentrate on creating a good credit record. One strategy to build credit is to get a credit builder loan. When approved, the lender typically stores the loan money in a savings or certificate of deposit account until the duration of the loan is completed and all payments are made.
When all of your payments have been completed, you will be granted the loaned funds with any accrued interest that has been gained during the duration of the loan. Utilizing a credit-builder account can be beneficial for constructing your creditworthiness as it allows you to demonstrate consistent, timely payments, which is the major factor in determining your credit score.
5. Opt for a credit card that offers secure protection
For those who don’t already possess a credit card, a secured credit card may be an option to consider. An initial security deposit is necessary, but these cards can help create a positive payment record if used regularly and payments are made on time every month. You can benefit from a secured credit card by earning rewards when you use it to make purchases.
Poor credit can be costly, but it’s not a life sentence.
A poor credit rating can be an expensive burden and may prevent you from obtaining fiscal stability and autonomy. Fortunately, it is possible to take action to enhance your credit score and provide yourself a fresh start.
It is difficult to prescribe an exact timeline for enhancing one’s credit score. While some activities, such as becoming an authorized user on another’s credit card or decreasing a credit card balance, can have a rapid effect on your score, others may take a few months to years to make a major impact.
Developing positive credit habits is essential not only for increasing your credit score initially but for maintaining it long-term.
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.
Have you ever wondered how credit scores function and how to boost yours? This article will discuss the fastest and most effective way to improve your credit score. In April 2018, Tatiana Homonoff, an Economics and Public Policy professor at New York University, published a paper on credit scores summarizing her two-year study on the subject. To help anyone improve their credit score, she recommended pointing them toward two relatively easy components: paying bills and using credit cards judiciously.
According to Homonoff, paying bills on time and keeping track of credit usage are two things that people can do with ease, despite being in a difficult financial situation. However, she recognizes there are some areas of the credit score algorithm that are virtually impossible to impact.
Let’s dive into how credit scores work and provide some pointers on how to improve yours.
What Is a Credit Score?
A credit score is your credit history quantified into a number to estimate how likely you are to repay any loans. A credit score of 300 to 850 indicates a good credit history, including timely payments, low credit usage, and long credit history. Those with lower scores are considered poor investments due to late payments or overextended credit use.
There are no set cutoffs for either excellent or poor scores, but there are guidelines for each. Lenders generally consider scores above 720 as ideal and scores below 630 as problematic.
People are becoming more aware of how raising their credit score improves their financial outlook, and Homonoff’s study provides evidence of this. Consumer behavior improved dramatically when people were aware of their credit score, according to Homonoff.
“People who thought they had excellent scores discovered that they had overvalued them. They stopped paying late, paid down their balances, and as a result, their scores improved.” Homonoff said. 90% of businesses in the United States use the FICO credit score to determine how much credit to provide consumers and what interest rate to charge them.
The formula used to generate your credit score involves five major components:
35% of the score is based on payment history.
30% is based on the amount owed.
15% is based on the length of credit history.
10% is based on your credit mix, i.e., mortgages, auto loans, credit cards, etc.
10% is based on new credit.
Credit scores are subject to change as you move through life. Your credit score will rise if you are timely in paying your debts, particularly credit cards and installment loans. When you use credit more often, whether you have more credit cards, get a mortgage, take out a student loan, or take out an auto loan, your credit score reflects how responsible you are with more debt.
13 Tricks to Increase Your Credit Score
Are you one of the many people who don’t know their credit rating? Good news—, you can get a free credit report from the top 3 bureaus annually. Discover Card gives you your FICO score, which is utilized by 90% of businesses that offer credit. Capital One, Chase, and other credit cards offer you Vantage Scores, which are similar but not identical. Sites like Credit Karma, Credit Sesame, and Quizzle work the same way.
Vantage Scores are generated using the same data as FICO, but the weighting of elements may be different, resulting in slightly different scores. It’s possible that your score might not be as high as you hoped. Homonoff suggests some ways to improve it:
1. Regularly Review Your Credit Report
You can request one free credit report from each of the three credit bureaus every year, and doing so will not negatively impact your credit score. Examine each report carefully for mistakes. Dispute those that you discover. This is the closest you can get to a fast credit fix.
A government survey discovered that 26% of people have at least one critical mistake in their report. Some mistakes are simple, such as misspelt names, addresses, or accounts registered to the wrong individual. Other issues are more serious, such as accounts that are incorrectly recorded as late or delinquent, debts that are listed twice, accounts that are listed as open when they are actually closed or accounts with inaccurate balances or credit limits.
Talking to the credit reporting agency to work on fixing incorrect or out-of-date information is a simple way to boost your score. A significant percentage of consumers whose information was incorrect saw their credit score increase as soon as the error was eradicated.
2. Set Up Payment Reminders
Create a timetable and set up online reminders to keep track of when you must pay your bills. In a few months, consistent bill payments will raise your score if you pay on time.
3. Make Multiple Payments During a Billing Cycle
Paying down your bills every two weeks rather than once a month lowers your credit utilization and improves your score. If you can afford it, do so.
4. Contact Your Creditors
If you miss payment deadlines and cannot pay your bills, set up a payment plan with your creditors immediately. A quick response can help ease the adverse consequences of late payments and high outstanding balances.
5. Apply for New Credit Sporadically
When you apply for or open several new accounts in a short time, it hurts your score, even though it increases your total credit limit.
6. Keep Unused Credit Card Accounts Open
Older credit histories are better, and the length of your credit history matters. If you must close credit accounts, close the newer ones.
7. Pay Attention When Paying Off Old Debts
A debt that has been “charged off” by a creditor is one that they do not expect further payments on. If you make a payment on a charged off account, it will be reactivated and your credit score will drop. This process is often employed by collection agencies.
8. Prioritize Paying Down “Maxed Out” Credit Cards
Pay off the credit card with the highest balance first if you have multiple credit cards and the amount owed is close to the credit limit.
9. Have Multiple Accounts for Diversification
Your credit score is determined by the proportion of different credit items—mortgages, auto loans, student loans, and credit cards—you have. Having more elements in your current credit mix is beneficial as long as you make on-time payments.
10. Go Loan Shopping
If you have bad credit and can’t find any other method to boost your score, you may opt for a “fast loan.” These are usually loans for small amounts—$250 to $1,000—that are reported to credit bureaus and can become a favorable item on your credit report. This should be a last-ditch effort.
11. Check Your Qualification for a 0% Interest Card
There are several companies that provide cards with 0% interest on balances, but there are restrictions to this. Typically, there is a transfer fee and the 0% offer lasts for up to 18 months. You typically need a very good credit score to qualify for one of these.
12. Have a Debt Consolidation Plan
It is true that enrolling in a debt consolidation program can temporarily lower your credit score, but as long as you make on-time payments, your score will improve quickly and you will be eliminating the debt that got you in trouble in the first place.
13. Pay Attention to Credit Utilization
The credit utilization ratio is the proportion of revolving credit you use out of the total credit you have available. It accounts for 30% of your credit rating and is frequently the most neglected way to improve your score. Credit cards are just one type of revolving credit, and personal and home equity lines of credit are also included. You should never use more than 30% of your credit limit.
How Long Does It Take To Rebuild Your Credit?
It typically takes at least 3-6 months of good credit behavior to see a noticeable change in your credit score. Unless the adverse information on your credit report was a minor blip, like being late on bill payments one month, it is hard to make a change any faster than that. It’s safe to say that the less damaging information is on your credit report—bankruptcy, constant credit applications, maxed-out credit cards, and other negatives—the easier it will be to improve your credit rating.
Repairing a poor credit history is more time-consuming than developing a good one. Errors can hurt your credit history and prevent you from acquiring a loan. You may be denied an apartment, utilities, or lose out on a job if you have a poor credit score. While some lenders do offer “bad credit loans,” the borrower frequently ends up incurring hundreds or thousands of dollars in higher interest rates.
Your credit score will be negatively impacted much more if you are habitually late with payments and have your account turned over to a collections firm.
Damaging information will remain on your credit report for different amounts of time, depending on the issue:
The repossession of your car will be a mark on your credit report for seven years.
Chapter 13 bankruptcy is a mark for seven years while Chapter 7 bankruptcy stays for 10 years.
Delinquent accounts stay in your report for seven years.
Credit application inquiries last on your report for two years.
Any public record items, e.g., property liens remain on your report for seven years.
The effect on your credit score diminishes over time, so a Chapter 13 bankruptcy in year six has little impact when compared to its impact in year one.
How to Increase Your Credit Score Fast
Check Your Credit Report Carefully
Look for negative information on your credit report and have it removed.
Ask for a free credit report from Experian, TransUnion, Equifax as they owe you one annually. One in every five reports contain errors and omissions that can make your score drop. Dispute any wrong information by providing documents that support your case.
Write goodwill letters to creditors requesting them to get rid of negative entries if you’re having difficulties with them. They aren’t obliged to grant your request but they can give you a good deal especially if you’ve had a good history with them before.
If you have any collections accounts on your report, look into “pay-to-delete” and have the scope of work in writing before you send them cash. The agency can remove your negative information after the settlement.
Enroll in Experian Boost
If your low score is due to being new to credit-seeking and making timely payments for utilities and cell phones, ask your lender to pull a report from Experian using its “Experian Boost” program. This is a hybrid model referred to as “alternative credit data”—non-traditional payments that provide lenders with valuable information about an individual’s creditworthiness.
Game the FICO Scoring System
As we saw earlier, there are five categories that make up your credit score. Among them, only the credit utilization ratio can influence your score significantly in the short-term. It is important to make sure payments are made before the statement closing date, so that lower balances are reported to the FICO and the big three bureaus.
With other factors constant, consumers with credit scores in the upper 600s—the bottom of the “good” range—have utilization ratios of 40-50%. To get into the 700s, you must have a credit utilization percentage of less than 30%. If you wish to assist your score quickly, use less than 15% of your credit. The less you use, the better.
Having a fat savings account or a generous uncle (or both) makes this fix simple. Otherwise, you must find extra money in your budget (or extra income in your month), in addition to spending discipline, to reduce your balances.
A debt-consolidation loan may be one way to attack high balances. Banks and credit unions, as well as various peer-to-peer lenders, are willing to eliminate credit-card debt if you can afford it. You can get a lower interest rate than Visa while eliminating your debt at the same time.
The other way to reduce your credit utilization ratio is to ask for a credit limit increase from your current lenders. But the idea of asking for higher credit limits when you have problems managing the ones you have should make you sick to your stomach.
Become an Authorized User
Having an incredibly generous parent with excellent credit is an excellent way to boost your credit score. Ask if you can be added as an authorized user to their account to gain a longer credit history. It should also help your credit utilization (if the balance on the new account is low). Please avoid using the credit card that is sent to you, as it is strictly for credit enhancement.
Getting a Credit Score
Having a positive credit history can benefit almost every aspect of your financial future, whether you want to purchase a car, rent or purchase a home, or seek a job. The easiest way to begin is to apply for a line of credit. Credit cards for gas stations or department stores are usually easy to obtain and are excellent methods to establish good credit. Using them responsibly and avoiding overcharging is crucial. Paying your bill on time each month is critical.
If you’re unable to get approved for a standard credit card, get a secured credit card instead. Secured credit cards require a deposit, which is often equal to the credit line. For instance, a $500 deposit gets you a $500 credit line. An secured card works the same as an unsecured card in that you receive a monthly statement and are expected to pay it. Make sure that spending on the secured card is reported to the credit bureaus.
Normally, as long as you pay each month, your deposit will be refunded when you are finished with the card. Your deposit cannot be used to make the monthly payments.
As we mentioned above, being an authorized user on a credit card can help build your credit history. The best position to be in when it comes to credit is to be an authorized credit card user. You can spend without worrying about paying, because someone else will pay for you, and your credit will improve as a result.
This way, you’ll have a credit card that can help you build your credit history, even as you wait to get one. You’ll get an increase in the number of years using credit, an increase in the average age of credit cards you use, and an increase in the credit utilization available on your cards. All three will be added to your credit report immediately. A 50-100 point boost to your credit score could be accomplished by these three elements alone.
Keep in mind that your credit score might be negatively affected if the cardholder misses payments, maxes out the card every month, or engages in any other negative behavior. Also, any negative activity you create can impact the cardholder’s credit score. If you max out the card and the cardholder is late with payments or cannot make them, it will be recorded as a negative on their account—and at some point, on yours as well.
You can also create a credit history by taking out a loan to buy a used car, if you have a job. Regular payments will establish your credit history positively.
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.
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.
