There are so many possibilities for individuals with good credit scores and I hate to see the limitations caused by low scores. When my clients come in and tell me how much I helped them realize their financial possibilities by raising their credit score, I always feel overwhelmed with joy and excitement! That is why I want to share with YOU today just why a credit score is so important and the things you may not be aware of that are preventing you from attaining your dream score.
To get started, a bad credit score generally ranges below 650 and an excellent credit score starts at 750. Those who have are at the lower end will face less opportunities in buying a car, obtaining a credit card, mortgaging their home, or even getting a job! I see it too many times with my clients with bad credit who attempt to buy a car but have to place a large down payment, seek a co-signer, and pay a high interest rate just because of their credit history. Not only that, but if you attempt to get a job, many employers will look at your credit history during the interview process and this can display a lack of responsibility and carelessness. What’s even worst? If you are seeking a job to pay off your outstanding debt to help your credit score and you are unable to get a job BECAUSE of your debt, then this only creates a bad cycle for you. Furthermore, good credit is needed to obtain a loan for various activities such as cosmetic surgery, business and student loans acquiring a new home, etc..
So now that you know all about why credit scores matter and what you need them for, just what is preventing you from getting that dream score of yours?
A huge factor could be your utilization rate. When you obtain your credit card you should only use 25% of your card. Meaning, if your card has a limit of $10,000, the maximum balance you should have on your card is $2,500. Typically, individuals who minimize their spending with credits to 25% have less difficulty paying off their credit cards and have higher scores! Furthermore, you should pay off your credit cards as much as you can! Consider this: credit reports take snapshots of your financial activity at any given moment and if you have an outstanding amount due on your card, this will reflect negatively on your credit report even if you plan to pay it off in a couple of weeks. Not only should you make payments, but you should pay off as much as you possibly can. You should start by paying off the card that has the lowest available credit on it as well so you are lowering your utilization rate as well in the process.
Next, people with higher credit scores tend to have a mixture of credit lines that they pay off and balance successfully. This includes credit cards, student loans, business loans, car loans, etc. Although you shouldn’t excessively apply for different types of credit to build your credit, managing different lines of credit showcases responsibility and reflects well on your credit report.
Another cause for bad credit is if you apply for too many applications that require lenders to look at your credit reports. This leads to an inquiry on your report, which will stay there by federal law for 24 months. This plays a role in your credit score as inquiries reflect that you are “shopping around for credit,” which statistically represents you will generally be a higher credit risk.
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