A credit score, which is a number that is arrived at after an analysis of one’s credit files, determines how creditworthy a person is. Poor analysis often calls on the borrower to fix credit scores to be qualified to apply for a loan or a credit card.
The range of credit score can vary on the basis of the model used by companies such as FICO and VantageScore, which create credit scores. However, the integrity of a credit score is determined not by these companies but by insurance companies and lenders who also determine the rate of interest they will charge on a loan, the discount they will offer on an insurance policy, the amount of credit they will approve, if credit should be extended, if a customer’s credit limit should be increased or reduced, or if a customer’s account should be closed.
Generally, a bad credit score is anything below 600. An excellent credit score is 750 and above, a good one is 700 to 749, a fair one is 650 to 699, and a poor one is 600 to 649. A study done in the year 2015 showed nearly 30% of Americans with poor or bad credit scores. A bad credit score is not an irreversible situation. It can be fixed but it would take time as it involves going through your finances in detail, finding errors, and correcting them.
Here are some tips to help fix credit scores over time.
Review your credit reports
The three main credit bureaus are Equifax, TransUnion, and Experian. You have a right to one free copy of your credit report from each of them every year. Check your credit report from each of them in detail because these reports tend to have inaccuracies. The importance of having an accurate credit report cannot be stressed enough because it determines your credit score and gives you an idea of how to fix it. Ensure that your personal information is accurate. Check to see if all your credit accounts are being reported, if a payment is reported as late or missed when you had made it on time, if there are unfamiliar credit accounts or applications, and if there are items or purchases from years ago that still make an appearance. If you do find an error, you will have to dispute the error with the bureau that made it. If you find more than one error, you will have to file a dispute for each error separately.
Identify the reasons behind a bad credit score
If you have an error on any one of your credit reports, there are a several possible reasons for its occurrence: your identity can be stolen, a past account is still being reported as active, your divorced partner has defaulted on payments they were supposed to make, your credit report is mixed up with someone else with the same name, you defaulted on a single loan but that loan has been sold to debt collectors and now it shows up as multiple defaults.
If your credit reports show no errors but your credit report is bad, there are several possible reasons for its occurrence: you might have a history of late payments that creditors view as a huge risk factor or you might already have a debt. If you are in debt, it weighs heavily on your credit score, contributing to 30% in FICO’s model. Your credit score might be poor if you’re new to credit and borrowing. It may take a while for your credit score to see a rise or get fixed. Another reason could be that you’ve applied for numerous credit cards. The possible reasons behind this can be worrying to a creditor.
Make a plan of action to fix credit scores
Draw out a plan to work on fixing your credit score. There are sites that can help you make action plans to fix your credit score. Instead of closing an account that has many missed payments, which will not make it disappear as you were hoping, fix these payments for the sake of your credit score. Work with your lender in extending payment dates, if necessary. Even if it takes time, and it will, wait out accounts you’ve defaulted in instead of closing them. It will help you build a strong credit age. Pay off your debts. Work with the debt collector to see if they will stop reporting should you make a full payment immediately. If you’ve suffered a foreclosure or bankruptcy, rest assured, your poor credit score account will disappear eventually because there are laws for that. Get a credit card if you don’t have one to improve your scores. Do not apply for unnecessary things like a store credit card. Keep your credit balances to less than 30% of your limit. Prepay some of the balance if it’s going to exceed the limit. Finally, open a secured credit card to show a positive payment history.
