The Benefits of Improving Your Credit Score From Poor to Good

Your Path to a Brighter Financial Future

Credit score means a lot in today’s world. This three-digit number can affect your life and your financial posture, especially when it comes to applying for credit cards or borrowing money for a car loan, home mortgage or even a retail account. Whenever you are applying for any type of a credit, the first thing a lender will check is your credit rating to estimate your future ability to pay. Based on this information, your application will either get approved or denied.

When your credit application gets approved, you will be required to pay a finance charge, or interest, in addition to the borrowed amount. You will also be required to make a minimum payment each month to repay the balance. Bottom line, the amount of money you are allowed to borrow and the amount of interest will depend on your credit rating, so you can borrow more with a higher credit score.

Generally speaking, your credit score is determined by a mathematical algorithm that evaluates your history of credit payments, or credit history. Credit score and your credit history forecast your future ability to pay as well as your ability to pay on time.

There are several scoring algorithms available to determine your ability to pay, with FIFCO and Vantage being the most popular models. Both use a sliding scale from 300 to 850 points with the bad credit score falling below 500, poor – between 500 and 649, fair –  between 650 and 699, good – between 700 and 749 and excellent – above 750. Some systems consider anything above 720 an excellent score.

In any case, a higher score means the consumer is less likely to default on their future payments. At the same time, having a poor credit score doesn’t mean that the consumer can’t get approved for a credit at all. Tons of vendors offer credit cards, loans and mortgages for bad credit. However, if your score falls below 649, you may not get an access to the best credit products and contract terms. You can still get a credit card with a bad score, but most likely it will be a secured card where you will have to put down a deposit to get approved.

Other examples of credit applications include car insurance and home mortgages. Consumers with the poor credit score are less likely to get a good deal on a car insurance as premiums go up for those with poor rating. Even interest rates on most mortgages could be up to four times higher compared to the options available to borrowers with good credit standing. At the end of the day, a good credit score gives you a better chance to get a nicer deal on a credit card, car loan or mortgage.

 

How Can You Get Good Credit?

Say, your current credit score is 580 and you need at least 650 to get you in the good credit range. Most people naturally progress in their credit ratings as they establish a good line of credit, a long history of ontime payments as well as increase the average age of their accounts over time. Managing your credit utilization rate is another way to grow your credit. This means you should keep your balances below 30% of your credit limit. If you go over 50% on any of your credit cards, your FIFCO score will go down immediately.

You can also boost your credit rating by adding positive tradelines to your accounts {link to the Tradelines post}. Adding tradelines for credit is a process of adding positive accounts to your credit history. This is something you could do on your own or hire a consultant to help you.

Surviving bad credit is neither easy nor cheap. Good credit score will make your financial life more stable and it will help save money in the long run. Looking for inspiration to improve your credit rating? Contact us today and we’ll be happy to help.

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