Table of Contents Hide
- The Consequences of a Bad Credit Score?
- How to Calculate Your Credit Score
- Financial Goals
- Talk to a Financial Advisor
- Looking to Raise Your Credit Score?
Are you struggling with bad credit? If so, you’re not alone. In 2021, 11.1 percent of Americans have a “Poor” FICO score.
This impacts your ability to qualify for loans. The credit score agencies vary between states. Yet, 90 percent of U.S. credit decisions rely on FICO scores.
Keep reading to learn more about credit scores and how to work toward a better score.
The Consequences of a Bad Credit Score?
Lenders use The Fair Isaac Corporation (FICO) and other factors to assess a borrower’s risk. FICO considers a credit score between 300 and 579 as “very poor”.
Lenders may deny your application. Or, they may extend credit but charge extra fees or require a deposit.
Auto and home insurance premiums may be higher. Utility companies often charge deposits before connecting services. Personal loans and credit cards have set higher interest rates.
How to Calculate Your Credit Score
FICO evaluates five different areas and gives each category a different weight. The following explains the FICO credit score.
Payment History (35 percent)
They check for on-time credit payments, a history of bankruptcy, or collection actions. The company also counts the number of late or missed payments.
Total Money Owed (30 percent)
FICO compares the ratio of debt to the amount of available credit. Maxing out all your credit cards will lower your score.
Years of Credit History (15 percent)
In general, the longer you’ve used credit and consistently paid it off, the better your score. Short credit histories are okay if you’re making on-time payments.
Mix of Credit (10 percent)
It’s better to have several credit accounts. This includes credit cards, auto loans, mortgages, and loans, for example.
New Credit (10 percent)
If you recently opened a lot of new credit accounts, you’re seen as a risk. This lowers your FICO score.
It’s key to know that credit use and payment history are the biggest factors affecting your score. Strive to use less than 30 percent of your credit limits. The following are three approaches to raising your credit score.
Secured Credit Card
OpenSky® Secure Visa® Credit Card doesn’t require a credit check. Capital One® offers a Secured card after a deposit of $49, $99, or $200 based on your score. Make small purchases on the card and pay it off on time each month.
Often credit unions or community banks offer credit-builder loans. First, you pay the total amount of the “loan”. Once paid, they give you the money and report your payments to the major credit agencies.
Be an Authorized User
Do you know someone with a good on-time payment history and low credit? Ask them to let you be an authorized user on their account.
This gives you a credit card to use. Keep a low balance and pay it off every month on time.
Talk to a Financial Advisor
Consider talking to a financial advisor. For example, this resource agency offers a 4-step process.
They provide a free analysis and consultation to discuss your financial goals. If you sign up with their service, they’ll complete a full audit of your credit reports.
Next, they add primary tradelines to your credit reports. This can include rent payments and revolving accounts.
They’ll also increase your credit limits. Last, they help you take steps to improve your score which may include getting a loan.
Looking to Raise Your Credit Score?
Improving your bad credit score takes work. You must reduce expenses and save money. This site has articles to help meet these goals.
Bookmark our page today to keep up with the latest tips.