Car Insurance Credit Debt Home Insurance Insurance Life Insurance Loans Mortgage Student Loans

Credit Repair: How to Fix Bad Credit Score Fast

Having a bad credit score can cause you not to get a mortgage or get a mortgage with a higher interest rate. Fix bad credit score using the methods discussed.

Your credit score is one of the factors that banks use to determine whether to accept your loan application. And with your credit score, banks determine how much they are willing to lend you. It also impacts the interest rate and lengths of the term to be offered. Hence, the need to fix bad credit.

The smaller the credit score, the higher the risk you pose to potential lenders. Likewise, an increase in credit score translates to better a loan or lower interest rates. Your credit score reveals a lot about your financial history. Your economic history comprises borrowed amounts, inquiries, and records of loan repayment.

Checking on financial history can increase credit. Closing down unused credit accounts lowers the credit score. To improve your credit score, you should pay off your debts and use a thin credit file.

Therefore, it is vital to learn the meaning of credit before delving into credit score repair.

What is a Credit Score?

A credit score is a number given out to represent your weight and trust as a borrower. Your credit score is a three-digit number. This number ranges between 300 and 850 depending on the agency used to calculate.

Other agencies grade your credit score between 0 and 1200. With new changes roping in every day, then expect the numbers to change. However, the emergence of new agencies has no significant impact on credit score repair.

There are several crediting scoring models with different score ranges. 700 is primarily considered a good credit score. A credit score higher than 700 is regarded as an excellent score. Credit scores may differ from each other. The credit score model and the credit bureaus are the two main factors contributing to disparities in scores.

The widely used bureaus are TransUnion, Equifax, and Experian. The most common credit score models are VantageScore and FICO.

  • FICO regards a fair score to be between 580 and 669.
  • VantageScore work with a range between 601 and 660 as a fair score.

FICO Score Vs. VantageScore: What’s The Difference?

FICO derives its grading from the following criteria:

1. Payment history (35%):  debt payment pattern converts to a portion of the 35%.

You may be wondering how debt patterns are derived. Here are some of the most debt payments you make: medical bills, student loans, car loans, and store credit accounts.

One late payment may not significantly impact the credit score. Several late payments result in a bad credit score.

2. Utilization rate (30%):  The total amount of loans and credits used compared to the total credit limit translates to a portion of the 30%.

This term may sound complex, but it is a number that shows how much of your available credit is currently in use. For a credit card with $1,000, then $500 is charged, and your utilization will be 50% of that card.

However, your credit score looks at your loans and credit cards, adds up to what you owe, and then compared to credit limits. This ratio accounts for 30% of your credit score.

The best credit scores, according to FICO, have a utilization rate of below 10%.

3. Length of the credit period contributes up to 15% of the total score depending on the duration.    

4. New credits (10%): The frequency of opening also plays a significant role in score grading. It can increase credit scores or decrease up to 10%.

If you are young and trying it out on credit, your score will reflect it. It isn’t much you can do for new users but continue using your card diligently and wait for your accounts to grow older. Closing older account, even those not in use, affects your overall account age. Opening a new report has the same effect on the general account age.

5. Credit mix (10%):  array of credit products ranging from credit cards, installment loans, and mortgage loans to finance company accounts affects the score by a minute of 10%.

Lenders like to see that you can take care of all kinds of loans and credit accounts. You will be rewarded for taking different credit cards diligently with an improved credit score.

It is important to note that there are two types of credit accounts: Revolving and installment loans and both protect you from a bad credit score.

Read Also: How to get out of debt faster

VantageScore, on the other hand, grades its score on an influential scale below:

  1. Extremely effective: Payment history is the major contributor to a good or bad credit score.
  1. Highly influential: Duration and type of credit have an intermediate input. The percentage of credit used also falls in this category.
  1. Fairly influential:  Total balances and debt
  1. Slightly transparent: The behavior of available credit and recent credit inquiries play a lesser role in this type of credit score model.

What Else Can Hurt Your Credit Score?

There are specific actions that bring down a good score or harm your already flimsy credit score. They may seem minor but prove to be vital in scaling up a bad credit score.

Highlighted below are some of the most probable dragnets that you may have encountered:

  1. Missing payments

You may have paid your bills, but it shows up as a late payment on your credit report or account. This caliber of error frequently occurs to anyone. You are then required to report to the relevant service provider. It consumes time but is worth the wait.

  1. Utility bills

Your phone, electricity, or gas bill can have a significant dent in your credit score .it can cause a decrease or increase credit score. If your utility company does not report to credit companies, debt is allowed to sit for too long before being sold off to debt collectors. This debt is then reported .to keep your score positive, and never disregard your water, phone, and electricity bills.

  1. Medical bills

Ignoring those small doctor bills may end up with a bad credit score on your side. You may have paid bills but in the wrong way. It is crucial to set up a proper payment channel to cover it. No matter the amount, defaulting a hospital bill dents your overall credit score.

  1. Reporting errors

Everyone makes a mistake at the appointment in time. Reporting agencies are not left out, and they occasionally get wrong information which may affect your overall credit score. To prevent such occurrences, request annual reports from the official website. Never pay to have a look at your financial information, and do not visit unofficial websites. Argue out any disparities with your credit bureau not cease until a consensus arrives.

A credit score is rooted in financial factors that guide lenders to judge your creditworthiness. Creditworthiness tells them whether you would be a reasonable credit risk. However, certain aspects are overlooked. These factors do not affect the overall credit score.

They include:

  • Your age.
  • Location
  • Ethnicity, race, or country of origin of the borrower is not necessary when grading credit scores.
  • Work history.
  • Family responsibility and structure.
  • Participation in credit counseling

While some factors matter in getting loans approved, they are not tied to performance on credit scores. The lender may ask for earnings to decide on monthly payments on the mortgage.

Read Also: How to get mortgage pre-approval

fix bad credit and improve credit score
Improve your credit score
Prev1 of 2
Use your ← → (arrow) keys to browse