Did you ever wonder how people can purchase stuff, from small things like groceries and deodorants to big purchases like cars and properties?
Is there some confusion when you think of money-related matters like installments and credit score? If you knew what those terms were, do you think you fully understand how you can raise your credit score?
Or are you looking for ways to bounce back and up your credit score? What would it mean if you’ll be able to raise your scores?
Today, we’ll show and tell you how important it is to increase and maintain your credit score. This guide will hopefully provide the answers to your questions on raising your credit score.
We also provided a video link below to give you a headstart to understand why improving credit score is essential.
Let’s get started!
What Does a Credit Score Mean?
Your credit score determines the things you can buy and in what terms. It’s the lifeblood of most purchases made ever since you opened your first bank account.
Don’t get us wrong, though.
People can still purchase expensive items through cash, but that’s not often the case. It’s rare to see someone buy something like, say a car, and pay immediately with cash on hand.
Most people may not be aware, but you begin to have a credit score as soon as you open your first bank account. It may seem harmless at first, but every financial choice matters.
But wait, it’s just opening a new account. Why should you care about your credit score when you just opened an account?
You see, opening an account may lead to debt. The new account you opened may represent potential losses through debt because you’re likely to pay using your credit card.
It’s normal to purchase products and services using your credit card via installment. Everything you buy using your card (or cards, for that matter) will reflect in your credit report.
Everything you purchase will reflect in your credit report, no matter how long ago that was.
What you should know about credit score:
Certain aspects, such as the accrediting bodies, must know about their credit standing.
- FICO, or the Fair Isaac Corporation, is the group that calculates your credit score. The FICO credit score is one of the most reliable, if not the most, score checkers in the United States.
- A credit score is different from a credit report. You can get a credit report for free here. On the other hand, you need to pay to determine what your credit score is.
- According to Federal Law, credit reports are free of charge, and you should get one every year.
It’s highly recommended you get annual credit reports so you can easily see if you were hit by identity theft.
Things That Would Affect Your Credit Score
As we’ve mentioned earlier, your credit score determines the things you can buy and in what terms.
Your credit score also dictates if you can purchase specific products or not. If you can buy some items, the credit score also determines the interest rate and payment terms.
What to watch out for to take care of your credit score:
- Credit scoring companies, such as FICO, use statistics to check the risk of lending money to individuals.
- FICO scores range from 300 to 850: the lower the credit score, the more likely you’ll get higher interest rates.
- As much as possible, don’t delay payment dues. If you’re unable to pay, banks may deploy a third-party collection agency to collect your payment. Do note, however, that there are separate charges to pay for when a collector contacts you.
- The FICO score looks at five factors: kinds of credit used, new enrolled credit, duration of your credit history, your payment history, and money owed.
To elaborate further on the factors FICO uses to check credit scores:
- Kind of Credit Used: This is the kind of loan you currently owe. It may be mortgages, credit card payments, or car loans.
- New Enrolled Credit: This is whenever you open a new account. There will always be a slight decrease in your credit score whenever you get a new loan.
- Credit History: This means your past transactions.
- Payment History: This shows whether you pay your dues on time,
- Money Owed: This factor identifies how close or far you are to pay your loans fully.
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Where You Can Look for More Info About Your Credit Score
We’ve mentioned credit scores and credit reports earlier. Credit reports are free of charge, while credit scores require a small fee to access.
Three financial bodies can send over a free credit report. As per Federal Law, each of the three nationwide consumer credit reporting firms is required to send a free credit report every 12 months.
These consumer credit reporting firms are Equifax, Experian, and TransUnion.
In each of the three Equifax, Experian, and TransUnion offices, the credit reports could differ. For example, an office could have six tough investigations on its report. One could have two, and the other can have four.
The hard question figure is a factor in the calculation of the credit. Despite being based on the same score model, these factors produce different scoring numbers.
There are different pieces of information provided to the three offices. Individual creditors who supply the data may differ as well, which means one or two of the three offices can report.
Lenders, including investment banks, have no legal obligation to provide each of the three offices with account information. A comprehensive review of all of your credit reports helps identify variability that might affect your credit standing.
While credit reporting is free, your accurate credit score is not in it. The total loan value is given in the information shown in the loan reports.
Some lenders offer to check the credit score, but that is not always the case. Most of the checks are ‘free’ when you make your next payouts.
Remember, annual credit reports are free, and you are entitled to receiving reports from any of the three agencies. If, in any case, your credit report request is denied, you are free to contact the CRA directly.
You can ask why the CRA declined your credit report request.
You can get started by visiting the Consumer Financial Protection Bureau’s website for more information on how to receive a free credit report.
How Long it Would Take You to Raise Your Credit Score
It would usually take one to two months to improve your credit score. Lenders will look at the established general parameters that were set to determine what makes a credit score good, which are listed as the following:
- Perfect credit score: 850
- Excellent score: 760-849
- Good credit score: 700 to 759
- Fair score: 650 to 699
- Low score: 649 and below
The scores are calculated by the five factors that lenders will consider before lending you money.
The first is payment history, which includes all the bills shown in your credit report. Creditors want to know that you are punctual and consistently on time with your payments.
Another factor is debt. It is always advised to keep the total debt lower than the overall credit available.
The third factor is credit history. Your credit history shows how long you’ve been managing your credits and how you have responsibly managed them. Creditors prefer seeing that you have been working on your credit score for a long time.
The score may also be affected by the credit types you possess. Having a good mix of credit types, such as credit cards, mortgages, and installment loans can improve the overall score.
The fifth factor is recently opened accounts. Creditors want to inspect where you have been inquiring about credit. However, applying for too much credit is seen as high risk as it would seem you are desperate for loans.
How to Maintain Good Credit Standing
Credit reporting firms use a formula to determine your credit score. It’s crucial to maintain your credit score to get yourself more feasible financial plans for the future.
Some things to remember to maintain and even increase your credit standing:
- Pay bills on time.
- Gain credit by paying utility bills on time.
- Pay off debt while keeping outstanding balances low.
- Don’t open new credit accounts unless necessary.
- Don’t apply for multiple credits, and don’t close unused cards.
- If you have trouble with your credit report, raise any discrepancy for accuracy.
It’s difficult to raise a low credit score, especially for individuals who have negative information on their credit reports. These negative data include late payments, a public record item like a bankruptcy, or too many inquiries.
For those struggling to raise their credit score, it will take at least seven years to recover. It’s best to pay all remaining dues and bills on time.
On the other hand, there are individuals with little experience with credit. They are considered to have a thin file, and there isn’t sufficient data to formulate a credit score.
Those with a thin credit file can increase their credit score by getting a secured credit card or getting a credit builder loan.
A credit score plays an integral part in your financial planning and daily life, and maintaining a good score is important. It is always recommended to check your credit report to see if it is high or needs to be improved.
If you’re still confused and you’re left wondering how to get started, it’s best to speak with a financing expert near you.
Did you find this article helpful? Let us know in the comments what credit score-related questions you want to ask us!
Don’t forget to share this article with a friend as well. Check out these credit-related articles below:
- Tips on How to Build Your Credit Score from Scratch
- The Right Card Choice for You
- Settling your Mortgage with Your Credit Card
Comment down below your thoughts about this article and what you would like to see from us next! Also, don’t forget to share with your friends and family!