Credit Score FAQ And How To Raise Or Rebuild Your Credit
To best raise your credit score, It is helpful for you to have, at least, a basic understanding of credit scores, and why they are important. As a result, I will first go over a short FAQ on credit scores, and then give you tips on rebuilding or raising your score.
CREDIT SCORE FAQ
1. What Is Your Credit Score?
A credit score is a number between 350 to 850 and is used by creditors to estimate how likely it is that you will pay back any borrowed money. The higher your credit score, the better your interest rate will be on your loan.
2. How Are Credit Scores Calculated?
Your credit scores are based on information that appears in your credit reports. For example, how many credit cards you have, your payment history, and how the total percentage of credit that you are using all appear on your credit report. The big three credit reporting agencies, which are Equifax, Experian, and TransUnion, then use this information to calculate your credit score.
3. Why Should I Care About My Credit Score?
Your credit report is critical because lenders, insurers, employers, and others use it to assess how responsible you are. You most likely realize that creditors use your credit score to decide what type of interest to charge you for credit cards, car payments, mortgages, etc. However, your credit score is used in other ways also:
- Insurance-Auto and other insurance providers often base your premiums on your credit score. As a result, if you have a poor credit score, you will pay more on your insurance premium.
- Job-Many employers will use your credit report as a factor in whether or not they will hire you.
- Utilities- If you have a poor credit score, many Electric, water, and other utilities will either require a co-signer or a deposit for you to get service.
- Apartments: Landlords use your credit score to decide if they will rent to you or how big a deposit you will be required to give them.
4. What Is Considered To Be an Excellent, Good, or Bad Credit Score?
- Excellent Credit Score- 800+
- Good Credit Score- 700+
- Poor Credit Score-579-
5. What Are The Different Types Of Credit?
There are three types of credit, which are the following:
- Revolving-Is a kind of credit that you can borrow freely from up to a set limit. Credit cards are the most common type of revolving credit.
- Installment– A loan that you pay off in a set amount of time, and the payments are at a fixed amount of money. Car loans, mortgages, and personal loans are prime examples of this kind of credit.
- Open-Are accounts that allow you to borrow a maximum amount (the creditor sets the amount); but, you have to pay off the amount that you spent on the card every month. You will most likely never see that as this type of credit
6. Where Do Lenders Get Your Credit Score?
Your credit score is based on information in credit reports that are compiled by the big three credit reporting agencies, which are TransUnion, Experian, and Equifax. With each agency, you can have a different score, and lenders may use either one or all of the credit reporting agencies. So, you should try to raise all three scores.
Rebuilding Your Credit Score
1. What Affects Your Credit Score?
Several factors affect your credit score. However, the following are the most common:
- The number of credit cards/loans that you have.
- How many years that you have had your credit cards and accounts
- Are you getting close to being maxed out on your cards, or are you already maxed out? If so, you can expect a lower credit score based you “utilizing” too much of your available credit.
- Late payment history for paying your bills
- No credit history
The following will severely and negatively affect your credit score:
- Car repossession
- Credit card default
- Bankruptcy (a bankruptcy will appear for ten years on your credit report)
- Being sued by a creditor for not paying your bill
- Foreclosure (will last for seven years on your credit report)
2. How Can I Best Improve My Credit Score In 30 Days?
If you start now, you may be able to raise your credit score in as little as 30 days. However, to increase your credit score significantly in a month or so, you will need to have the various credit reporting agencies fix any mistakes that you may have on your report. Otherwise, it will take time to increase your score significantly. But, with perseverance, you will be able to improve your credit score in a reasonable period if you either do or refrain from doing the following:
- Pay your bills on time-Your score will increase if you get into a habit of paying your bills on time. Tip-Make sure you don’t miss a payment by allowing the creditor to auto withdrawal from your bank account.
- Get Caught Up-If you are late on your bills, get caught up, and be sure not to get behind again.
- Breathing Room- Don’t max out on your credit cards. A rule of thumb is that your credit balance should be at no more than 30% of the total credit that you have.
- Establish A Credit History-The longer you have credit (optimally different type of credit), the better your score will be. Of course, the above is only valid if you pay your bills on time, and you don’t have any major blemishes on your record.
- Carefully Closing Credit Cards-Closing a credit card can be an issue if, after closing the card results in you using a higher percentage of your available credit on your other cards.
- Not Applying For Too Much Credit-Applying for multiple credit cards is a sign that you are potentially having money problems.
- Errors, Mistakes, Or Omissions-Errors or omissions, on your credit report, will lower your score.
- Increasing Your Credit Limits-As stated earlier, maxing out on your credit card negatively affects your credit score. So, Increasing your credit limit on cards will help you with this issue as it will raise the percentage of available credit that you have. CAUTION: This tip can hurt you if you use your newly granted credit increase. So, only ask for a credit limit increase if you have confidence that you have the discipline to max out your cards again.
- Different Type Of Credit-Having different types of credit, to a lesser extent, will help increase your score. So, if you are financially capable, you should have both revolving and installment credit cards. Caution-This is a long term strategy and could, at first, even lower your score. Also, don’t do this (I.E., Buy a car) if you don’t feel comfortable doing so.
3. What Are The Most Common Types Of Credit Report Mistakes?
Mistakes can and do happen on your credit report, and if So, you should regularly check your credit report for any errors. You can sign up for a service, like CreditKarma, for free or order a yearly, free credit report at annualcreditreport.com or call 877-322-8228.
Look for the following when getting your credit report:
- Name, phone number, and address are correct
- Any credit cards, loans, mortgages, or other credit that isn’t yours.
- Mistakenly reported late payments
- Closed accounts that are shown open
- An unpaid debt showing up multiple times
- Bankruptcies or foreclosures showing up on your credit report when they should have fallen off
4. How Can I Fix A Mistake On My Credit Report?
Correcting a mistake on your credit report will often take time and persistence. But, correcting any errors on your credit report can the quickest way for you to increase your score. To correct a mistake, you should contact the creditor and see if they will voluntarily contact the credit bureaus to ask them to fix the error. If that does not work, then directly contact the credit reporting agency (be sure to supply any proof), and have them remove or fix the mistake.
For a more in-depth explanation of how to do this CLICK HERE- Link for this is also at the end of this article.
Final Thoughts And Recommendations
Unless there are mistakes on your credit report that you get corrected, it can take a while for you to improve your credit score. So, be wary of any outlandish claims, like “You will be able to raise your score by 100 points or more in ten days, with ease.”
Improving your credit score take time, patience, persistence, and a little bit of luck. However, the effort is worthwhile as it can save you thousands of dollars. So, keep at, and your score will eventually increase tenfold.
For further information, please check out the articles below:
- How Your Credit Score Allows You To Buy Your Dream House, Car and Get The Best Insurance Rates
- How To Dispute Credit Reporting Error