You Have a Bad Credit Rating? It is not the End

You Have a Bad Credit Rating? It is not the End

Nowadays population has blurred information about the phenomenon of bad credit rating. They generally know that a bad credit rating leads to be refused for personal loans or for credit cards provided by the traditional lenders. They also know that a bad credit rating may cause problems linked to the process of finding an apartment or in some cases even finding a job. The worst rating means troubles in lending if customers have instant cash problems. However, it is essential to underline, that people do not have detailed information such as what sort of scores are regarded to be bad and what kind of behavior may cause bad credit rating? As well as they do not understand the exact steps that you need to organize in order to fix your score. If you are one of those, do not start to panic, because due to the information provided in this article you will get the key points of scoring issue.

Scoring System

Generally, under credit score, we understand the FICO score. This is one of the well-known sorts of scores. The scale of rating varies from 300 to 850. If you have a high rating accordingly you have high creditworthiness. The breakdown of FICO scores is as follows:  

  • Great Credit: 720-850
  • Good Credit: 680-719
  • Fair Credit: 630-679
  • Subprime Credit: 550-629
  • Poor Credit: 300-549

Bad scores may be considered ratings between 300 and 629 called “subprime credit” and “poor credit”. However, be informed that if your score is subprime you may still be eligible for traditional lending. People with subprime credit status may still apply for loans and credit cards secured with no collateral. Nevertheless, keep in mind, that if you have a subprime credit score you may also apply for a mortgage or car loan, but the terms and the interest rates will be much stricter. Now you may have questions about the difference between subprime credit and poor credit. If subprime credit score holders may still be eligible for products provided by retail banks or credit organizations, the “poor credit” status holders may not be entitled to traditional lending anymore. However, do not be discouraged, if you have poor credit status you may still be available in the “game of lending” because payday loans may be available even for such kinds of people. You can visit and apply online by filling out an application form. These kinds of loans may solve your emergency crisis by providing you quick cash. 

How are FICO Scores Generated?

FICO scoring is based on the credit reports that filter your credit history as a borrower within the past ten years. Basically, these reports are held by credit bureaus such as Equifax, Experian, and TransUnion. Credit reports are based on five key categories:

  • Payment History

It consists of about 35% of your credit score. In accordance with announcements of FICO, your prior behavior is the main background to predict your future behavior.

  • Credit Utilization

It illustrates the percentage of the borrowed amount. This category comprises 30% of the FICO score.

  • Length of Credit History

Length of credit history exhibits the duration and the most recent activeness for accounts. This indicator takes 15% of your credit score. 

  • New Credit

The indicator shows the recent credit inquiries and comprises 10% of your FICO score.

  • Credit Mix

Credit mix is linked to the sorts of accounts that draw up borrowers’ credit reports. Credit mix designs over 10% of FICO score.

How to Fix a Bad Credit Score

 In order to start improving your score, first and foremost, check your credit score online. After getting your score you will be much informed about the risk factors and start to make appropriate changes to improve your score. This is the list of actions that may affect your credit score:

1. Payment of Bills  

Most of the lenders’ focus concentrated on the payments of bills while reviewing your credit report. Usually, they predict your performance based on your prior actions.

 2. Get a Credit Card for Utility Payments

It is real to improve your credit score based on making utility payments on time. You can use the product called “Experian Boost” to improve your rating by just allowing Experian to have an access to your bank account and determine your utility payment history. After confirming payment history, it will be added to your Experian card file and updated in the FICO scoring system.

 3. Keep the Balance on the Credit Card Low

There is a thing called “credit utilization ratio”. In other words, it is the ratio of your all credit card balances. The low ratio means that you probably know how to manage your credit well.

 4. Open Credit Accounts if you Really Need it

Do not apply for a credit account in order to have a better credit mix; it may probably hurt your score because too many inquiries in your FICO report are not applicable.

 5. Rule of Unused Credit Cards

Do not strive to close the unused credit as it may affect your credit utilization ratio. Especially, if you have the same amount but have fewer open accounts, your credit score may be downgraded.

 6. Argue any Mistakes in your Credit Reports

It is important to check your credit reports with three credit bureaus: TransUnion, Equifax, and Experian and if there are any existing inaccuracies, you should dispute the information and get the corrected report.

Essential Tips for borrowers

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