Having good credit is an indication of your financial health. When you have good credit, you have better purchasing power and more options with a lot of things. So, if you’re having issues with your credit score, read on to know some top tips for repairing your credit.
But first, let’s talk about what a good credit score means.
What is a Good Credit Score?
A credit score is a three-digit number from 300 to 800 that shows your financial reputation or how reliable you are in terms of managing your credit. It’s calculated based on the various pieces of data from your credit report such as amount owed, payment history, credit mix, new accounts opened, and length of credit history.
There are two main credit scoring models used these days— FICO score and VantageScore.
The first one, developed by an analytics software company called Fair Isaac Corporation, was used by consumers since 1989. Your FICO score can be anything from 300 to 850 wherein 670 to 739 means good credit and 300 to 579 shows poor credit.
On the other hand, VantageScore has been used since 2006. While a FICO score can take up to six months of credit history to get, you only need a month to generate a VantageScore. For this, your credit score can range from 300 to 850. In this scoring model, 661 to 780 means good while 500 to 600 translates to poor credit.
How a Bad Credit Score Affects You
A bad credit rating can have deleterious effects on your life —from getting employed to renting a place. Yes, late fees won’t be your only concern.
First, you might need to pay higher interest on credit cards and loans. Having bad credit means it’s riskier for financial institutions to let you borrow so you need to pay through a higher interest rate. Worse, they may not allow you to borrow.
Another repercussion of bad credit is trouble getting a place. Landlords check your credit history to know if you’re reliable so if you have poor credit, it might be difficult for you to get approval on your rental application.
Even your insurance premium might get affected. While there are other factors considered, poor credit typically means higher insurance costs. For instance, for car insurance, The Zebra’s 2019 report shows that drivers with poor credit pay two times more for car insurance compared to those with great credit.
Top Tips For Repairing Your Credit
Here are some helpful tips you can use to build back your credit:
Take into account your credit utilization ratio
Your credit utilization ratio is your credit card balance divided by the available credit (credit card limit) multiplied by 100. Experts recommend keeping this ratio less than 30%.
For instance, you have $2,000 in credit card balance and an overall $20,000 available credit, your credit utilization ratio is 10%.
Now, while it’s tempting to close an account to repair your credit, do think twice because your utilization ratio will get affected.
Open A Secured Credit Card
A secured account is one that has a cash deposit in the bank to serve as collateral. Compared to typical credit cards, you have to show something in order to charge something from your credit card. Basically, how much you deposit becomes your credit limit.
Get Help From Friends and Family
Another thing you can do is to ask for help from people you trust. They can help you restore your credit by opening a joint credit account with you. What’s good is that you can get the opportunity to have more favorable terms such as lower interest rates and higher credit limits.
Also, your friend or family member can be a cosigner when you need to get a loan. When you have somebody with excellent credit as a cosigner, it’s more likely that you’ll get approved for a loan.
If you need more ideas, click here to learn more.
Just remember, it’s going to take some time to fix up your credit. You’ll need time, discipline, and a lot of self-control but it’ll be worth it in the end.