Guide to Credit Scores
Once you have gotten a credit score, you must know how to interpret it.
There are two main credit scoring models:
- FICO score – FICO score is the standard scoring model that is most widely used by lenders and is still the most common method.
- VantageScore – VantageScore, developed by VantageScore Solutions, is an alternative scoring model. It is a synthetic credit score model, meaning that it’s designed to measure consumers’ ability to repay.
How Credit Scores Work
The credit score is derived from information in your credit report. It looks at your payment history regularly. It also examines your credit utilization, the ratio of your credit limits to the amount of credit you use.
Credit score calculations can have a complex nature. For example, FICO scores have a kink in them. This is why you must review your score regularly.
Take a look at the example below to get a better idea of how these scoring models work:
To figure out the score you can use the same assumptions that FICO uses for the calculation of a VantageScore.
How to Improve Your Credit Score
There are several steps that you can take to improve your credit score and start getting the best interest rates available on mortgages, auto loans, and personal loans.
Pay all your bills on time
If you are consistently late with any payments, your credit score will decline. On the other hand, if you can pay your bills on time and not fall behind, your credit score will likely increase.
Pay down the balance on your credit cards
If you are carrying a balance on your credit card, paying it down can help your credit score. It is one of the most important steps you can take to increase your credit score.
Open new accounts
Keeping your credit utilization at a low level is important. If your credit card has a balance, that number needs to decrease. Otherwise, it can negatively affect your credit score. An opening new account can help decrease the amount of money you owe to the credit providers.
Take advantage of the various credit products offered by various lenders
If you can take advantage of credit products offered by several lenders, you will get a higher rate of interest and it can help you to improve your credit score.
Enroll in a credit monitoring service
Credit monitoring services can help you to better understand how your credit score is doing. You can learn from their mistakes and avoid making them in the future.
Pay off your debts
If you have a collection account with a large balance, pay it off to improve your credit score. Paying your credit card on time can help you pay off your collection account in one payment. If you can’t pay off your credit card, you need to start getting a part-time job.
Put a “preferred” payment option on your credit cards
You can pay off your entire bill in a single monthly payment, rather than spread it out. Some credit cards have a high limit and a $0 introductory APR to entice you to sign up. However, you should pay off your bill in the shortest amount of time possible.
Use a 0% balance transfer offer
If you can get a 0% balance transfer offer, it can reduce your interest costs and boost your credit score. This can be especially useful if you are getting a new mortgage.
Get pre-approved for a loan
A pre-approval letter can give you a strong idea about what interest rate you will have to pay. It can also provide you with the pre-approval for the loan you want to apply for.
Approach a private lender
Lenders that are not part of the mainstream lending community can charge less interest. They may have fewer standards and impose fewer restrictions.
Wait a few months before applying
Getting pre-approved does not guarantee a lower interest rate, nor does it mean your credit score will increase. As a result, it is generally a good idea to wait a few months to start getting pre-approved for a loan. You may get a lower interest rate and a higher credit score.
It is essential to understand that the rates on credit cards are not the same as the rates that are offered by private lenders. Private lenders have tighter standards and may require collateral or proof of financial hardship. However, they generally charge lower interest rates.
If you are trying to improve your credit score, you should also understand what to do when your credit score drops. This can help you to understand how to reverse the situation when you get a new credit card or when a collection account gets sent to collections.
A credit score is important when it comes to securing your financial future and also applying for new credit. Having a good credit score can make the difference between being approved for a credit card and having your request denied.
Establish a Strong Credit History
The next step in your credit score recovery process is to focus on establishing a strong credit history. To do this, you need to pay your credit card on time, avoid signing up for any additional credit, and don’t have any collection accounts.
If you follow these tips, you will be on your way to establishing a solid credit history. Use our tips and you will be well on your way to getting the best interest rate and the best possible credit score.
Fees and Cards
- Bank Charges: There are some banks that charge as much as 7.2% interest on credit cards. Most credit cards charge annual fees that range between 0.5 and 1% of the card’s balance.
- Consolidate Debt: Pay off your credit cards to establish a solid credit history. If you have several cards with balances, it is advisable to pay off the balance on the highest interest rate credit card first.
- Update and Upgrade: When you have established good credit history and when you no longer need a credit card, you can consider updating and upgrading your cards. Cards may be updated and upgraded at no cost or with a small annual fee.
Problems with Cards
- Cancellations and Changes: If you need to cancel your card, it is important to keep the data of the expired cards, which you will need if you want to apply for new credit. Make sure that the information about your card will not be sold to other companies, otherwise, you will be stuck with a higher interest rate.
- Late Payments: When you have a late payment, it can adversely affect your credit score. If you can’t pay the bill or if the payment is not being processed on time, you may lose your credit score.
Bad Customer Reviews
- Contacting the Consumer Affairs Department: Do not be afraid to contact the Consumer Affairs department of the bank that you have the credit card. Most banks allow you to contact them directly and they will be able to help you resolve your issues. They may ask you for proof of the bill or contact the company that the payment is being made. However, they will never tell you to contact your credit card company directly.
- Access to Debt Collections: Pay attention to your credit card statements and understand the differences between collection accounts and late payments. Most debt collectors will not try to be mean, they will just want to get paid. If you receive a collection notice, make sure you take care of the matter within the next 30 days or it will be reported to the credit bureaus.
Repairing Your Credit History
When you have a good credit score, you can successfully apply for loans and be approved for the loans. These loans will give you access to new credit lines and help you to reduce your credit card balances.
Jumia Travel, the leading online travel agency, shares 5 simple ways to repair and recover your credit.
- Know your credit score
When you first apply for a credit card, make sure you know what your credit score is. You can get your credit score from one of the credit bureau websites, Google, or similar sites. Some apps can help you track your credit score, which you can download onto your smartphone or tablet.
- Pay your bills on time
There is no point in having a good credit score if you can’t manage your finances. To manage your finances, make sure you pay your credit card bills on time. Most credit cards charge late fees if you don’t pay your bill on time.
- Submit correct and complete documentation
The company that issued the credit card will review the documents you submit to them. If you have a mortgage or other loan, you will need to show that you own the property or are paying off the loan.
- Keep your accounts open
Some companies do not report all transactions to the credit bureaus. Therefore, if you have several credit cards and they are all in good standing, you may not be showing the lenders that you are responsible. Keep a close eye on your accounts and pay them on time to maintain a good credit score.
- Watch your credit report
If you want to repair your credit score, you will have to check your credit report. Credit reports should include transactions and accounts in your name that have been reported as paid off. If you do not see your accounts in the report, the credit bureaus should correct it.
What Does a Low Credit Score Mean for You?
Even with a low credit score, it is possible to qualify for a mortgage or auto loan. However, you will need to be willing to work with a lender who accepts a lower credit score. If you think you will be rejected for a loan, consider lowering your credit score by lowering your credit utilization and paying off some debt. It is still important to pay your bills on time. If you lose your job or suffer a serious financial setback, your credit score will suffer.
If you have a low credit score, you may be able to take steps to improve it. In most cases, you can take advantage of the various credit products available to you. You may be able to pay off your debt and improve your credit score at the same time. You can also find a private lender willing to accept a lower credit score.
If you can improve your credit score and make sure you pay your bills on time, you can improve your chances of getting approved for a mortgage. Even if you cannot improve your credit score, you can still qualify for a loan. Be sure to get pre-approved, and you can find out whether you can get approved.
Conclusion
Many people think that having a low credit score means that they cannot qualify for loans. But by making smart choices about what to do with your money and how to manage your debt, you can reduce your credit utilization, improve your credit score and get a loan.
It is best to increase your credit score if you can. The higher your score, the more likely you are to get approved for a mortgage and other loans. The lower your score, the more difficult you are to get a loan. The good news is that it is possible to improve your credit score.
