Here’s what is considered a ‘bad’ credit score and how to improve it

A credit score is an important measure of financial health. This means that you are trustworthy with financial institutions and can help you determine how easy or expensive it is to to buy a house or a car, or rent an apartment. A voucher might even help you get a date.

It is therefore important, if you can, to take action to improve your score. But the factors that determine a good or a bad are not widely understood: 25% of millennials I don’t even know what a credit score is, according to a LendEdu survey.

Here is an explanation of how these scores are determined, what is considered good or bad, and some tips on how to establish, improve, and maintain good credit.

How credit scoring works

Many creditors use the popular FICO scoring system, which combines financial data collected from major credit bureaus Equifax, Experian, and TransUnion. These credit bureaus also have their own rating system, VantageScore, which bases ratings on internal financial data.

Your credit score is directly linked to the financial decisions you make, such as pay your loans or credit card bills on time.

The range from good to bad

Each scoring system goes from 300, the lowest possible score, to 850, the highest possible score. A score between 750 and 850 is considered “excellent”, according to the financial site NerdWallet.

A score ranging from 700 to 749 is considered “good”; a score of 650-700 is “fair”; and a score from 300 to 649 is “bad”.

How to establish or maintain a good score

If you’re trying to create credit from scratch, there are several ways to start. The first, and most common, is open a credit card. This can help you establish a formal line of credit and start building a good credit history, which is reported to all three credit bureaus.

If you are just getting started, you may not be allowed to open a new card on your own, in which case you could, with your permission, use someone else’s. This process is called credit card piggybacking and involves becoming an authorized user on someone else’s card: the primary cardholder agrees to add you as a secondary user so that you can benefit. of the benefits of good credit.

The card’s payment history is then part of your own credit report, NerdWallet explains: “So even if you were 19 and couldn’t qualify for credit on your own, you might have a credit card.”

This method is useful if your goal is to gain experience with plastic, or if you don’t have enough credit history for a specific goal. It is not intended to dissipate or rehabilitate poor credit.

Another option: get a junior credit card, which aims to teach young adults and children good credit habits by allowing them to use a card connected to an adult’s account.

Any missteps on the part of the junior card holder are however reflected in the adult’s account. And write-offs, late payments and debts addressed to a collection agency remain listed for seven years..

If you don’t have a credit card and aren’t connected with anyone else, another way to build credit is to have an installment loan, although taking out a loan is generally not recommended. unless you really need it. You might already have one, anyway: many student loans are installment loans. This is why it is important to pay them on time or to inquire Alternative solutions if you can’t.

How to improve your score

Making timely payments in full is essential to establishing or improving a good score. And since the details of your payment history, including late or missed payments, are considered public records and can stay on your credit report for years to come, you should aim to pay off their monthly balance as much as possible, on time, every time.

the snowball method, in which you pay off the smallest debt first and then move on to the next, is a popular way of doing this. Redd Horrorcks, a freelance actress, using this method, paid $ 39,000 in credit card debt in five years.

In addition to paying in full and on time, also look to lower your credit utilization rate, which is the ratio of how much you spent on your credit card to the card limit. “The smaller this percentage,” according to Bankrate, “the better for your credit rating.”

“Even if you pay off the balances in full each month, you might still have a higher usage rate than you expected. This is because some issuers use your statement balance as shown at the office. The ideal utilization rate is less than 30 percent of your available credit.

Also, especially if you have multiple cards (the average American is 3.1), try to eliminate small persistent balances. “One of the things your score takes into account is how many of your cards have balances,” John Ulzheimer, former FICO and Equifax credit expert, told Bankrate. “That’s why charging $ 50 on one card and $ 30 on another, instead of using the same card, can hurt your score.”

Then, he says, pick one or two cards of choice for most of your purchases: “That way you won’t pollute your credit report with a lot of balances.”

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