Four Most Common Problems with Credit score
Credit score has a significant role to play in our financial lives. A good score translates to better interest rates on mortgages, personal loan, car loans, as well as refinancing student loans. Additionally, a good score can also help you avail a cheaper auto insurance as well.
The reason behind all the hype behind credit scores is that these seemingly mystical numbers demonstrate your sense of financial responsibility.
Also, they are deduced in a manner to reward responsible behavior. So if you live within your means and take care to pay on time, you’ll be awarded with a good score.
People often want to know how to fix their credit score or credit report. Now depending on your individual situation, the answers differ.
Here are the four most commonly recognized problems with credit:
#1 High Utilization Value
In a bid to avoid credit card debt, many people restrict themselves to a single credit card and pay off the pending balance in full every month. Sure, paying off your balance on time and in full every month is no doubt an excellent practice, because that means you will never have to deal with an interest expense. That being said, using a single credit card can actually harm your score, by driving up an essential factor called utilization. The latter is basically the percentage of available credit that is in use. Suppose you have a credit limit of $200 and statement balance of $50. Your utilization will be 40%. A high utilization can adversely impact your credit score. By rule of thumb, it’s advisable to keep utilization below 20%.
#2 High Credit Balance
If you have had poor credit for several years despite paying bills on time, it may be due to a high credit card balance. In case, your credit card balance is always more than 75% of the credit limit, then this is seen as a red alert to the credit score system. Consequently, this will dramatically reduce your credit score as it’s a sign that your income is probably jeopardized and that you don’t have the money to repay what you owe. You’re then considered to be a bigger risk to your prospective lender. To maintain a nice credit score, it’s advisable to maintain your balance below 50% of its limit, even while collecting points. Then again, the very best idea is to pay off your card balance each month and ensure not to have any pending credit at all. And if you have a high credit card balance at the moment, consider paying it at least down to below at least 75% of your specific credit limit. By doing this, you will find your credit score improving.
#3 Unpaid Collections
Your credit score may fall dramatically if you’ve unresolved collections reported in the public records section in your credit report. Examples of collection items are unpaid speeding tickets, parking tickets, driving fines, utility bills and cell phone bills. The good news is that once you pay off these sort of debts, you can get the opportunity to ask the creditors to exclude out their collection notices from the credit report, and fortunately, most of them will comply to your request. Ensure asking them in writing before making the payment. If the reason behind your low credit rating was a few collection items, then your score can instantly rebound as soon as these collections are excluded out. That being said, other unpaid debts you incurred as a part of any formal credit arrangement such as personal loan and credit cards cannot be removed too fast from the credit report as soon as they’re paid in full.
#4 Late Payments
If you have excess of late or skipped payments on your credit report, there’s no trick to improve your credit score fast. The only way to undo the damage that late payments cause is by showing that you pay off your debts on time over a period of few years. As time passes by and you consistently make timely payments, your credit score improves. Consequently, the record of every late payment will get excluded out of your credit record seven years from the time of late payment. Therefore, gradually, late payments will get excluded out from your credit history and you’ll have a remarkable credit score, provided you manage to make payments on time continuously.
Improving your credit score in an attempt to seek better deals on your loans is really a long-drawn process. However, one pretty rare way out is to bank on online lending services for immediate loans. A personal loan from Northstar Brokers allows for different options for the borrower, saves time and money and involves a more pleasant experience in general. To top it all, they are available even for people with bad credit. Thus instead of heading down to a local bank with your unimpressive credit records to request money and ending up facing instant refusal, it’s far more logical to keep your dignity intact and make a quick search on the internet for reputable money lending services. These help you fund special purchases, cover important expenses and even consolidate your high-interest rate credit cards.