Having an excellent credit score opens up a lot of financial opportunities for you.
It’s not just banks and lenders who are interested in your credit score but insurance companies, investors, landlords, and employers also pay keen attention to it.
Did you know a poor credit score can prevent you from getting services such as rent and employment?
Other than that, you can expect to pay high rates for loans. As you can see, having a great credit score makes life very easy for you.
But, What Makes a Good or Bad Credit Score?
Before we can give you the current credit score bracket, you should know that a negative report on your score lasts for 7 years.
The likes of bankruptcies can go for up to 10 years. It doesn’t matter whether you paid the agency or not, it will take that long for that report to disappear from your file.
Here is a bracket of credit scores from worst to excellent;
Worst (F) 300 – 579
Poor (D) 580 – 659
Average (C) 660 – 699
Very Good (B) 700 – 749
Excellent (A) 750 – 800
There are three main factors that can affect a person’s credit score. They include; amount of debt you owe, your payment history, and how much credit you have.
When it comes to debt, credit card debt affects your score more than personal debts such as car loans or mortgage.
Other than being categorized at a certain range, your credit score will include your total debt, the number of late payments you have, and the number of accounts you have amongst others.
To know your credit score, you can get a report from providers such as FICO. Most of these companies will require some payment, whereas there are others like CreditSesame that are free.
Efforts such as keeping accounts and credit cards open and paid on time for the longest time possible can improve your ratings. Also, contrary to what most people think, closing credit cards can lower your credit score.
A lot of people struggle with poor credit scores that affect their financial lives.
Below, we are going to discuss in detail ways on how to build an excellent credit score. But before we get to that, please be informed that checking your credit score severally will not affect your credit.
Even when you buy a car or a house, it will not negatively affect your credit score. However, applying for multiple credit cards raises a red flag and this can lower your scores.
Also, frequently checking your credit score puts you a step ahead and gives you clarity on where you stand.
How to Build an Excellent Credit Score?
Earlier, we discussed how negative reports can affect your score for at least 7 years. Well, making a couple of adjustments can raise your credit score in just a month. While doing this, it is best that you are as careful as possible to avoid getting negative reports.
Let’s go through a quick guide on how you can rebuild a poor credit score;
- Start by paying bills on time, if possible you can set monthly reminders
- Don’t close your accounts, instead ensure they are in good standing
- For those with previous debts, pay them off as soon as possible
- Try to reduce your credit ration in the shortest time possible
- Embrace a habit of checking your credit report yearly
- Be on the lookout for mistakes on your credit report and report if there are any
- You can also write to the bureau to delete late payments on small negatives that can affect your score
For people who don’t notice any positive changes after following the above tips, you should consider downsizing to a less expensive house, cutting as many expenses as possible, working extra shifts, and anything else that will elevate your financial status.
To get further help, you can always seek the assistance of a financial counselor.
We can’t emphasize enough on the benefits of closing accounts. Doing this can drop your credit score extensively.
For example, if you have a card with a $10,000 limit, yet you have other balances, closing this account lowers your debt to credit ratio and this can increase your ratings.
Why You Should Set Up Payment Reminders?
The number one rule of credit card use if you have a poor credit score is; don’t use it if you don’t know how to pay it.
The best course of action is to pay off the revolving debt. And if after adhering to these regulations you successfully attain a good credit score, note that a late payment can have a significant impact on it.
Those with lower credit scores, late payments don’t have a bigger impact on their scores. Therefore, always ensure that you pay your debts on time to avoid your ratings being lowered.
Since man is to error, there are times when you may miss a payment. Most collection agencies will send you a missed bill letter and give you an extension.
Make sure you pay the debt during this extension period and ask the debtor not to report your missed payment right away. This can help you retain an excellent credit score.
A good scenario of the above is when one time when a mistake happened after I paid a company via check.
A couple of days after, I got a call from a collection agency asking about the payment. I had to forward a copy of the payment to the agency and I was cleared.
Also, setting up reminders is very important because it’s not always that a company will send your bill right on time.
As long as you have a reminder, you can make payment even without receiving the bill. Mix-ups happen and you should never hesitate towards defending yourself.
While we are still talking about collection companies, you should be very keen when dealing with them.
Not all collection companies are legitimate. There are a good number of frauds out there. And as a result, never be too quick to give out your personal details like social security numbers.
Always ask for clarifications from the collection agency and if possible look them up online.
The Bottom Line
Don’t forget to check your credit score frequently. This will catch you up to speed on your credit score status and you can see factors that are affecting it. And once you attain an excellent credit score, ensure that you maintain good credit habits.