What is a credit score?
If you have ever tried to buy a big item, for instance, an apartment or a car, and you need to get it via funding, the financial company confidently will ask you about your credit score. This is one of the most significant factors lending companies take into consideration to define whether or not to lend you.
Credit and insurance companies, lenders need credit scores to decide loan amounts and interest rates. Your credit score is based on your credit history and it can have bad effects on just how much you end up paying.
How much is the average credit score?
Average credit scores range from 300 to 850. Usually, a 680 credit score or above is considered a good credit score, any score above 740 is considered excellent, credit scores below 550 are considered a bad score. So, if your credit score dropped up to 550 to improve the credit score will take some effort and work.
What is a bad credit score?
Every lender sets its own guidelines for what is a bad score and makes decisions about the risks it is willing to take in extending credit.
Some companies lend only to those who have excellent credit scores, in this case, people even with a score of 695 could be rejected. However, there are lenders who are willing to finance those with bad scores.
Here are the main categories of credit scores
- 720 and above: Excellent credit
- 690-719: Good credit
- 630-689: Fair credit
- 300-629: Bad credit
Bad credit can hinder you to take a loan. It means you can be rejected— or you can get approved but you will have to pay higher interest rates than if your credit score were higher.
Yet, there are ways to improve your bad score. If you understand how credit scores work you will know where to focus your efforts.
For instance, there are some credit options that can help you improve your credit score. They are:
- A secured credit card. You make a primary cash payment, which usually comes to be your credit limit. You can use your card like a regular credit card, you need carefully pay bills on time and keep your balance low.
- Credit-builder loans. The loan amount is released to you after you pay back the loan. Make sure that the lender reports your payments to other major credit-reporting agencies.
- Becoming an authorized user. If you have a time-consuming record of on-time payment and low credit utilization is willing to add you to a credit card, your credit could benefit.
What to expect with a bad score
If you have bad scores, sometimes, you’ll pay higher interest rates.
- You won’t qualify for 0% interest credit cards, for example, or personal loans at single-digit interest rates.
- You’ll face subprime rates to finance a car or a house.
- You may also have to pay more for auto insurance, depending on the state you live in, and may have to pay more for home insurance.
- You may be stuck paying utility deposits that people with higher credit scores get to skip.
You need to keep in mind that a bad score does not mean you are a bad person — it might just mean you put some unexpected bills on a credit card and had trouble paying. Credit is really just a tool, and what makes a score “bad” depends on what you want it to accomplish for you.
What can affect a credit score?
While every credit scoring model is different, there are a number of common factors that affect your score. These factors include:
- Payment history
- Using your credit limits
- Balances on your active credit
- Credit inquiries
- Available credit
- Number of accounts
Each factor has its own value in a credit score. If you want to keep your numbers higher end, it is important to pay your bills on time, using your already approved credits, and limiting inquiries.
How can I improve my credit scores?
While dealing with credit score one common question arises “What can I do to improve my score?” There are many ways to improve your credit score to the higher end of the scale. Some of these methods include:
- Cleaning up your credit report
- Paying down your balance
- Paying twice a month
- Increasing your credit limit
- Opening a new account
- Negotiating outstanding balance
- Making payments on time
Many financial institutions offer customers help in managing multiple payments. They have a special debt management plan to help you pay your bills on time and in the right way without affecting your scores.
If your credit history is not as good as it could be, don’t be sad – you aren’t alone. Improving your credit scores proceeds time, but the sooner you address the issues that might be slow them down, the faster your credit scores will go up. You can take steps to increase your credit scores. There is no guarantee that one day you will not need a loan or credits. People can always find themselves in a bad financial condition, and if you don’t have a credit history or scores or you have bad credit then you need quickly take steps to improve it.