Improving your credit score is not as hard as you think. Your goal is to remove negative items from your credit as quickly as possible. Then raise it with good credit habits.
What is a Good/Bad Credit Score?
An average credit score is between 600-750. Below 600 is a bad credit score. Above 800 is good. Regardless of your credit score, you can fix it and usually see improvement fast.
7 Items That Lenders Pay Attention to When Considering Your Credit
- Payment History– Includes how and when you paid for credit items in the past. Payment History contains payment of rent, car loans, car insurance, utilities, doctor bills, and more. It goes back as far as your college days or the first time you ever paid for anything that carries a line of credit.
- Credit utilization-Includes the amount of your unpaid credit. It is the balance of credit limit you are using. For example, if your balance is $300 and your credit limit is $1,000, then your credit utilization for that credit card is 30.
- The total amount of used credit– Credit is like a gas tank. You have a certain amount, and how much you have used indicates how much you have left. If you spent a considerable amount on your credit cards, loan officers perceive that you do not have much to go on.
- The age of your accounts-The length of time that you have been using credit is essential and is known as your “credit age.” The older and stronger the credit age is, the higher the score is possible.
- Your credit mix– Your credit mix reflects a combination and total of credit cards, retail accounts, installment loans, or long-standing loans. This can be contradicting because the more lines of credit you have open, the better your credit will be if they are all paid. If you do not have any credit cards, your score will be lower.
- Chapter 7 Bankruptcy– Includes the use of a bankruptcy trustee that collects and sells the debtor’s nonexempt assets to pay back the creditors following the provisions of the Bankruptcy Code. There is no payment plan needed for the one in debt.
- Chapter 13 Bankruptcy- Includes a repayment plan of debts over three-to-five years while being able to keep assets.
How Credit Scores Are Calculated
Credit scores are calculated using algorithms based on information from one of your credit reports. Lenders use several different methods and different algorithms to measure each score. The process is even more basic than it seems. Regardless of how your FICO score calculated, you can always improve it.
The difference between a credit score and the FICO score are that they are systems used by different credit services that created them. The credit score is a method created by Equifax, a service to determine credit risks. The FICO score was created by The Fair Isaac Corporation. They do the same job.
How to Improve Your Credit Score
- Pay your bills on time– Your credit score can improve by paying your bills ahead of time or on time. Late payments are looked at as bad habits that you acquired that future lenders are going to look at first.
- Pay off debts and keep balances low on credit cards– Always pay your credit cards on time or even better don’t use credit cards if you can’t pay them off. They are good to use when building your credit, but if you can’t afford them, then you could be doing more harm. If you do use your cards responsibly, then pay the whole amount owed every month.
- Dispute inaccurate credit reports– Once you have your credit reports in hand, there may be mistakes. These reports are rarely perfect. Scan them yourself. Even if there aren’t any mistakes, highlight what you might be able to fix with an easy phone call.
- Call the companies that you owe– The best thing you can do is call a company that you owe money to. Companies love this because then they do not have to spend money to chase you. You can work out an easy payment plan, and most companies will remove the charge off your credit just because you had the decency to call.
Improving your credit will enhance your financial confidence, help you get that mortgage, keep you away from bankruptcy and have peace of mind.
If you have good credit, that is awesome. If you do not have a good credit score right now and you still want to buy a house or a car, there are more options than you can take that will enhance your credit. Contact Bearden Law before you file a Chapter 7 Missouri Bankruptcy. Bearden Law will tell you exactly what to do in regards to your credit and how to help you raise your credit score.