How Fixing Your Credit Score Can Improve Your Financial Outlook
Do you know your credit score? Most people don’t. In fact, most people don’t fully know what a credit score is. They do know that it’s important, though. It’s basically the centerpiece of your financial resumé.
How to Fix Your Credit Score
Sadly, it’s not as simple as – have debt=bad / don’t have debt=good.
You need debt to get credit and you usually need credit to collect (useful)debt. This makes having no credit or bad credit such a tricky spot to get out of. This is also why so many college students need co-signers to do just about anything credit related.
No-Credit-Check Credit Cards – When you open and use a card that doesn’t require a credit check, like the Unique Platinum Card and use it wisely, you’ll start rebuilding your payment history. The longer you use it and pay on time the more it lengthens your credit age and gives you a source of good debt (as oxymoronic as that sounds).
Credit Aroma is another great source for finding a card that can help you improve your credit by allowing you to select from cards with terms that fit your needs. They also offer prepaid credit cards that can be even more helpful in building and maintaining your credit score. Cards like the First Progress Platinum Prestige Mastercard® Secured Credit Card offer lower APRs because of the security deposit you create before using the card.
The Freedom Gold Card is yet another option that’s extremely accessible to people with less than stellar credit. It has a 0 APR and requires no employment check.
Brand Specific Cards – If you’re credit is on the mend and you are just trying to maintain it, consider brand cards like the Target REDcard. Not only will it help your credit score (if used responsibly, of course), but it also offers savings and deals when you shop at Target, Starbucks, and select restaurants and movies.
Once you’ve armed yourself with a credit card tailored to you; it all comes down to how you use it. Knowing how your credit score works is a big step in using it in a way that will make your score soar!
Just in case you don’t know how your credit score works…
What is a Credit Score?
Whoever said “past performance is not a guarantee of future results” definitely didn’t work for a credit bureau.
A credit score is just an indication of how likely you are to repay a debt in the form of a number.
If your financial history suggests that you’re “good for it” your score will be high (anything near or over 800 is stellar). If your financial history suggests that you’re a risk, your score will be low (anything lower than 650 is problematic).
A good score can be a golden ticket. A bad score can be crippling when trying to buy a car, get a loan, or rent an apartment.
Also, before we go any farther; when we say, ‘credit score’ we are usually talking about ‘credit scores’, plural. There are three, from the three major credit bureaus: Equifax, Experian, and TransUnion. They use slightly different scoring metrics which is why your scores will typically be different but still in the same ballpark.
How Are Credit Scores Determined?
Seeing as there are multiple institutions coming up with multiple numbers using multiple criteria, the complete, scientific answer to that question involves a lot of inside baseball. When you boil it down, you get these major factors:
- Payment History: Do you make payments? Do you miss payments? Do you pay the minimum? Are your payments late? All of this and more makes up your payment history.
- Credit Age: How long have you had it? Typically, the longer the better, assuming you’ve been paying.
- Debt: How much do you owe? This isn’t like the $20 bucks your sister spotted you for pizza. This is auto loans, mortgages, student loans, and credit cards. (The type of debt you have is also a factor)
- Hard Inquiries: Yup, even people checking your credit score effects your credit score. To be clear though, only inquires used for credit decisions will hurt your score. General background checks and your own inquiries won’t be counted against you.
Don’t Pay Off Your Card Entirely: Crazy, I know! Some of this stuff is counter intuitive, but you want to keep that good debt aging.
Don’t get too excited though! You definitely want to keep the balance low! Under 10% of your limit is recommended but keeping it at a number you could comfortably pay off at any time is your best bet.
Diversify Your Credit: Once you’ve started building your numbers up, don’t rely exclusively on credit card credit. Take out a loan for a car or for school. Paying for multiple things at the same time shows that you are reliable, which is what your credit score is all about.