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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.

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. 

Consequences of Having a Poor Credit Rating

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. 

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. 

The Ultimate Guide to Increasing Your Credit Score 

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. 

How to Read a Credit Report

Your credit report provides information about your overall financial status. Reading a credit report is the best way to grasp your financial picture. It may seem challenging at first, but deciphering your credit report is incredibly simple.

Your credit report is used to determine your credit score as well as other financial decisions, and it is essentially a detailed record of your credit history. Our best credit report advice is to learn how to read a credit report and to check for errors at least once a year.

Getting a Credit Report

You can get a credit report by requesting one from one of the credit bureaus. The AnnualCreditReport.com website allows you to get one free copy of your credit report from Equifax, Experian, and TransUnion each year. To get all three reports at once, you must order directly from AnnualCreditReport.com.

How to Read Your Credit Report

All three credit bureaus should provide accurate information in these five categories, though the information may be slightly different.

Your report will include information about your name (including previous names and aliases), your Social Security number, and your birth date. It will also have your current and previous addresses and contact information like phone numbers and email addresses.

1. Personal details

Look out for misspellings and incorrect personal information.

Every aspect of your credit report must refer to you, not to your dependents, not to your ex-spouse, and certainly not to a person with the same name. Make sure that your personal details are correct.

Something is awry when you see a misspelt last name, an incorrect middle initial, an incorrect Social Security Number digit, or a phone number that does not belong to you. These are all indications that your report may have been confused with someone else’s.

2. Job experience

Your credit report includes current and previous employers’ information in the personal information section.

Make sure you recognize all of the employers listed.

Your employment history doesn’t affect your credit score because it doesn’t have anything to do with your credit or debt. Incorrect information like employer names you don’t recognize or employers you never worked for is a warning sign that you should verify your identity.

3. Credit history

The FICO credit score is calculated from quite a few factors, including the amount owed (30%), the length of credit history (15%), new credit (10%), and credit mix (10%). Your payment history, however, accounts for 35% of your credit score calculation.

Paying close attention to the sections that list your credit history on your credit score is critical since it has the most important pieces of data used to determine your credit score. The following information is included in a credit report as part of your credit history:

  • Payment history: This shows the details of all your payments. More specifically, if you made the minimum payments and how timely you are at making them. All missed payments contribute to a negative report. 
  • Closed and current accounts: Your accounts for the last seven to ten years will be listed. Whether it’s a joined account, individual account, or you’re an authorized user of any account, it will show up. There will be auto loans, student loans, mortgages and other installment loans as well as any revolving credit. 
  • Current balances: the highest balance on your accounts, as well as the current balance in the account when the creditor reported to the bureaus, will be listed.
  • Creditors/lenders names: All the listed accounts will have the names of all your creditors and the date the accounts were opened. 
  • Loan amounts or credit limits: This will show the credit limits for your current revolving accounts and the loan amount for any instalment accounts. 
  • Status of your accounts:  Your accounts will either be listed as open or closed, foreclosed, transferred, or refinanced. Others may be listed as charged off and they may be considered delinquent. 
  • Account opening and closing dates

Even after you’ve closed an account or paid off a loan, accounts will continue to appear on your credit history for some time. Your credit report will continue to reflect negative credit information such as late payments, charged-off loans and accounts, as well as delinquent loans, for seven years. After 10 years, accounts that are currently in good standing will no longer appear on your credit report.

Pay attention to all account details, especially the payment history.

Make sure that the account number, account name, balance amount, payment history, payment due date, and payment status are all correct by carefully scrutinizing your credit history. It’s important to make sure the account’s current credit limits or original loan amounts are correct. If the credit limit listed is lower than the one you actually have, it may negatively affect your credit utilization, which in turn impacts your credit score.

The following are other potential errors to look out for in this section:

  • Accounts reported as delinquent, but they’re actually open accounts. 
  • Closed accounts that are listed as open. 
  • Good standing accounts were erroneously reported as delinquent. 
  • Wrong dates: Opened/closed account dates, payment dates or dates for delinquent payments. 
  • Accounts where you’re an authorized user but you’re listed as the owner. 
  • An account listed multiple times under different creditors. This mostly happens with collections or delinquent accounts. 

Every account listed must be yours. If you don’t recognize an issuer, find an account that you didn’t open, see an incorrect balance, or notice another problem, you should dispute the error. Inaccurate account information could be a sign of identity theft, as well as outdated information on a credit report.

4. Public records

These are debts included in your report. A chapter 7 bankruptcy will remain on your credit report for 10 years. Records such as bankruptcies, foreclosures, and repossessions will be on your report for seven years. These events can negatively impact your credit standing, as they demonstrate a serious pattern of delinquency. Arrests, lawsuits, divorces, and law-unrelated infractions are not included in this section.

Public records can have a detrimental effect on your future financial well-being.

If there is a negative item on your credit report, you may need to submit a credit report explanation to lenders to explain why it is there. A public record must be verified with a courthouse visit at least every 90 days in order to be included on your credit report. Be certain that the information is correct with respect to your name, date of birth, address, and personal information.

Tax liens no longer affect your credit, so you should not see property tax liens, income tax liens, federal and state tax liens, or civil judgments on your report. If an error is found on your credit report, you should dispute it with the credit bureaus.

  1. Credit inquiries

Credit inquiries show a record of who has access to your information and when they accessed it. There are two types of credit inquiries: hard and soft inquiries.

  • Soft inquiry: When you check your own credit or when creditors and other companies check your account. 
  • Hard inquiry: When lenders check your account when you’re applying for new loans, credit cards, credit card limits increase, or when a collection agency wants to contact you. 

A hard inquiry typically reduces your credit score by a few points, but soft inquiries do not. Lenders worry about increased risk when they see you requesting more credit because it may signal riskier behavior.

A hard credit inquiry can lower your credit score or signal identity theft.

An unfamiliar credit inquiry on your report may indicate identity theft, but it might also be the result of multiple potential lenders pulling your report after you apply for a loan or mortgage. Issuers, on the other hand, typically count close-timed inquiries as a single inquiry if they occur within a certain time frame (usually 45 days or less).

Make sure to delete all inquiries listed after two years, as they should be. You may file a dispute and request a hard inquiry removal if necessary.

Importance of Credit Reports

Your credit report is a critical indicator of your financial well-being. Credit can either make or break your chances of getting a mortgage, as well as influence what sort of credit cards, insurance, and interest rates you are eligible for.

Landlords are more likely to rent you an apartment if you have good credit. Banks and lenders are also more likely to say yes to your credit applications, and you can receive lower interest rates or better credit terms, such as a low-cost fixed-rate mortgage or a higher credit line on a credit card.

You may not be able to acquire the most effective credit cards if you have bad credit, and you may have higher insurance costs and interest rates. You might be denied a rental, have to make a bigger advance payment, or co-sign with a creditworthy individual if you have bad credit scores. It might even influence your love life, according to a poll by Bankrate.

Checking your credit report can help you understand where you stand so you can improve your credit score. Checking your credit report at least once a year can also help you correct any errors so that your credit report accurately reflects your financial situation.

Dispute the Errors

Incorrect or out-of-date information on one of your credit reports can be corrected by filing a dispute with the credit bureau or hiring a credit repair company to do the heavy lifting for you. It is crucial to detect any mistakes, as incorrect information can negatively impact your credit score as well as any applications that rely on your credit report.

Check your credit report

It is important to check your credit report for mistakes that could damage your credit rating or indicate identity theft. The following are examples of potential errors:

  • Wrong addresses
  • Accounts and account numbers you don’t know
  • Wrong account status

Disputes are evaluated on a case-by-case basis, so you must provide documentation to support your claim. You must provide proof of your identity, including your Social Security number, birth date, and a photocopy of your ID (such as your driver’s license or passport). You may need to send copies of documents to support your contention, which may include bank and credit card statements, loans, or death certificates, depending on the specific error.

Challenge the mistakes on credit reports

You can easily submit a complaint online or via mail or phone to Equifax, TransUnion, and Experian. Here are their addresses. 

  • Equifax: Report your complaints online or by mail to Equifax Information Services, LLC, P.O. Box 740256, Atlanta, GA 30374-0256. Dispute over the phone at (866) 349-5191.
  • Experian: Report your dispute information online or over the phone using the toll-free number included on your credit report. If you want to use mail, send it to Experian, P.O. Box 4500, Allen, TX 75013.
  • TransUnion: Call the toll-free number (800) 916-8800, online or by mail to TransUnion Consumer Solutions, P.O. Box 2000, Chester, PA, 19016-2000. Ensure you’ve filled in the request form on the website.

Review the credit bureau’s response

You have 30 days to have any errors, omissions, or unverifiable information on your credit report corrected or deleted. However, due to the COVID-19 epidemic, the Consumer Financial Protection Bureau extended the deadline to 45 days as of April 2020.

Bottom Line

It’s important to understand how to read your credit report so you can improve your credit and maintain a healthy credit score. Your credit reports should be monitored regularly to prevent identity theft and fraud. When you understand why it’s important to check your credit report and how to read one, you can make more intelligent purchasing and borrowing decisions.

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!