If you’re in the market for a new home or car, you can benefit financially from shopping around among a number of lenders for the lowest interest rate. However, according to Ovation, if you’ve heard that multiple credit checks can negatively affect your credit score, you may be hesitant to approach more than one lender. Below is a quick review of what you need to know in order to enjoy peace of mind and get the best possible deal on your loan. Continue reading →
How Does Bad Credit Affect Me?
Your credit score doesn’t show who you are as a person, but what’s on your credit report can still have a huge impact on your life. Here’s what you can expect to happen if you have bad credit.
Higher Interest Rates
Higher interest rates should be one of the most obvious impacts of bad credit, but they often go forgotten when you’re just trying to get approved. Lenders don’t give the same terms to everyone who gets approved. Instead, terms vary depending on your credit profile.
The biggest variable is the interest rate. The more risky a lender perceives you as, the higher your interest rate will be. A bad-credit car loan could carry double-digit interest rates while good-credit approvals are less than 3 percent. Credit card interest rates can also vary by up to 15 percent depending on whether you were just barely approved or have stellar credit.
Increased Car Insurance Premiums
You may be wondering what your credit report has to do with car insurance, but the truth is it could make a several hundred dollar difference in your premium. The general idea is the better your credit, the more likely you are to have money in the bank.
If you have money in the bank, you’re viewed as less likely to cost the insurance company money by filing small claims, so they reward you with a lower rate.
Trouble Finding a Place to Live
It used to be that to rent an apartment, landlords just wanted to see that you have no evictions or recent history of late payments on your credit report. In today’s tight rental market, landlords can afford to wait for a tenant with stellar credit.
Many properties have imposed minimum credit scores that could be in the 700s. Excessive credit card balances or less recent negative items can also lead to a denial.
Mortgage lending has also gotten stricter after the housing bubble burst. To even be approved, you’ll need a high score, little to no outstanding debt, and no negative history within the past few years.
Being Denied for Jobs
Credit checks used to be reserved for only the most sensitive of positions, but today they are almost routine. Employers view your credit score as a sign of responsibility and risk.
Their thinking is that if you’re in debt, you have more incentive to steal from the company, accept bribes, or commit other misconduct that could cost the company money. While it may seem unfair when you need a job to pay down your debt, the high unemployment rate lets employers be choosy.
Having to Pay Utility Deposits
Your electricity, water and other utilities are on credit since you pay after using the services. That’s why utility companies check your credit when you open an account.
If you have bad credit, you could have to put down a deposit of $100 or more before you can get your lights turned on. While the deposit is refundable and may not sound like much in the grand scheme of things, moving expenses can stretch the best-planned budgets even without having to pay extra deposits.
Not Being Able to Open a Bank Account
Do you need to get your paycheck by direct deposit or pay rent or other bills by ACH payments? That could be a problem if you have bad credit.
Most banks now check your credit before you open any kind of account. Even if you aren’t applying for a credit card, they’re still worried about bad checks and overdrafts.
If you have a history of defaults or charge-offs, many banks will refuse to open an account, and others might require a deposit that won’t be available for withdrawal until you improve your credit.
Having Other Accounts Closed
Financial institutions, especially credit card lenders, regularly check your credit report. They care about both your payment history with them and your overall credit score.
If you’re consistently making only minimum payments to a lender, they may worry that you’re overstretched and reduce your credit limit. Similarly, if a lender sees you rapidly adding debt or opening accounts with other banks, they might worry that you’re about to run up a balance you can’t repay with them. Even if you have perfect history with a lender, that type of outside activity could lead to them closing your account or slashing your credit limit.
Not Qualifying for a Professional License
Like employers, professional licensing boards also review your credit report. Their thinking is if you can’t be responsible with your own money, how can you be responsible with a client’s? They also worry that you may have incentive to defraud a client or perform sub-par services due to trying to take on too much work to repay your debt.
Adding Stress to Your Life
Even if nothing bad happens right away, having bad credit still adds stress to your life. You’re constantly worried about when the debt collector will call next, whether your accounts will remain open, and how you will pay all of your bills this month.
Getting your credit back in order can give you both a personal and financial safety net that takes a weight off your shoulders.
What You Must Know About Credit Scores
Many financial experts recommended that consumers should fix their credit score when it is bad, especially before approaching financial institutions or banks for financing, or even when thinking about applying for a credit card.
A credit score is calculated using your previous credit score repayment history. In case the credit score is quite poor, lenders might refuse to offer credit. In case your credit score qualifies you for financing with a favorable interest rate, later you may appreciate the hard work of fixing a bad credit record.
Using Credit Score Companies
Companies like Ovation Credit and CreditKarma are fee-based credit score monitoring services with different bells an whistles. Corporations like these use TranUnion data to discover your credit score. If you’re particularly interested in credit score estimation free of charge then, you can visit many sites accessible on the net which provide a free credit score calculator.
Possessing a superb credit score is very important in the present time, and can be affected for good or ill as soon as a handful of payments are made or missed. Establishing a positive credit record is crucial. Thus, your typical credit score might actually receive a boost from responsible repayment on a loan or a credit card and banks will also begin to extend more favorable credit terms in the future.
Credit Score improvement?
If there’s a substantial difference between your credit limit and actual expenditure, it’ll boost your credit rating as long as you don’t max things out on a regular basis.
These installments can really be used as a means to enhance the credit score and credit score rating, as every timely installment enhances the credit score score. Delinquent payments can reduce your credit score.
If you are irresponsible in your spending and bill payments, the result will undoubtedly push your credit score lower.
There are some useful things to do to raise your credit score, but it is a bit complicated. Your score relies on the FICO model as well as the interest you pay, in addition to your own monthly payment history.
Credit Scores: behind the scenes
There are only a few primary credit score bureaus that offer consumers and creditors with free FICO scores. The three different rating agencies generate separate credit ratings in actuality!
Credit inquiries reduce your own credit score. however, it doesn’t mean that you should keep away from rate shopping. Automated information is utilized by the credit score bureaus for processing your own credit score.
Presently, bureaus use different credit scoring setups, nevertheless, FICO scores have gotten synonymous with personal credit scores. So, if you’re serious about correcting and improving your FICO credit rating, it’s going to be well worth the little investment to acquire all three scores with your credit reports.
How to Fix a bad Credit Score
Among the things that may leave a blot on your personal credit report and credit score is unpaid personal credit card debt.
Although plenty of people may have told you incessantly about paying your mortgage and charge card payments in time, there are many other factors too that may hurt your credit rating. Loads of inquiries negatively impact your credit score. The reason being credit inquiries of any type will hurt your existent credit score badly.
Only those with a great credit score are thought of as worthy applicants for charge cards. On the reverse side, not paying bills when they’re due or stacking debt, will impact the credit score, much like how credit score cards do.
Now that you have a general idea about how to raise the credit limit in your card (by responsible spending and repayment), attempt to use it in order to enhance your own credit score.
What Your Credit Score Says About You
Your credit score is one of your most valuable possessions, and it has the virtue of being impossible to steal. It can, however, be damaged by error, fraud or personal financial behavior, so it’s important to learn all you can about how it works.
How is My Credit Score Created?
The three credit-reporting agencies, or credit bureaus, pay attention to your financial behavior. These three companies (Equifax, Transunion and Experian) record how much of your available credit you tend to use, your track record in paying off your loans and how long you’ve had your various credit accounts open.
Almost any time you have an overdue account, even if it is related to a utility bill or paying rent, that account is reported to one or more of the credit bureaus. Each credit-reporting agency assembles your information into a credit report and provides the information to a scoring company. FICO is the largest and most-used scoring company, although there are others.
What Do Credit Score Numbers Mean?
FICO scores range between 300 and 850. The usual breakdown of FICO scores is:
- 300 – 579: Poor
- 580 – 669: Fair
- 670 – 739: Good
- 740 – 799: Very Good
- 800 – 850: Exceptional
The average FICO score has risen over the years, and is now 695. All lenders make their own use of credit scores, so there is no standardized cut-off number.
There are other scores besides the basic FICO score. VantageScore is one that is gaining in popularity, and it uses the same 300 to 850 scale. In addition to these general scores, there are industry-specific credit scores used by auto lenders, insurance companies, bank cards, landlords, and so on. Some of these specialized scores have different numbering systems, but consumers don’t usually gain access to them. Essentially, all the specialized scores will be quite similar to your general score because they are all reflecting the same financial behavior.
FICO explains how your payment history and other financial facts are usually weighted in creating your credit score. The following percentages are generally assigned, although FICO notes that people who have a very short credit history may have a different ratio:
- Payment history: 35 percent. If you made a late payment on any account, the scoring formula considers how late it was, how much the payment was for, and how often you are late in paying.
- Amounts owed: 30 percent. This category looks at how much of your available credit you’re using. Someone who owes $2,000 on a credit card with a limit of $20,000 earns a better score than someone who owes $2,000 on a credit card with a limit of $2,500. Under this category, the scoring formula also checks to see how many credit cards and other loans you currently have. Having too many credit cards can hurt your credit because it suggests that you’re not living within your means.
- Length of credit history: 15 percent. Credit card and loan accounts that you’ve had for a number of years show evidence of stable financial patterns. People with poor credit tend to open new accounts more frequently, often seeking to roll over debt onto another card.
- New credit: 10 percent. Applying for multiple new credit accounts raises red flags in the credit scoring formula because it suggests that you’re in some kind of financial need. However, rate shopping for a single loan (auto or mortgage) is not a problem if you contact several lenders within a few weeks’ time. Any time you apply for credit, the lender requests your credit score, and these requests themselves become part of your credit report for the next two years.
- Credit mix: 10 percent. The existence of several types of credit can have a beneficial effect on your score, but you shouldn’t take out new loans for the sole purpose of trying to boost this factor. People with no credit cards in their credit mix are at a slight disadvantage because a credit card with a good payment track record can benefit your score.
There is more information on your credit report than can fit into the above categories, however. For example, your credit report includes any bankruptcies, foreclosures, judgments or liens against you. Credit reports also take note of hard inquiries — when you apply for credit with a lender who checks your credit score. Some credit scores even include details from your rental history.
Although you don’t have the ability to directly control your credit score, you can protect it by making sure that the information in your credit report is correct. In 2014, 31.8 million U.S. credit card customers were victims of some type of identity theft, and any such misuse of your credit account can cause lasting damage on your credit report.
Even in the absence of fraud, the credit bureaus frequently make mistakes. An investigation by CBS News found that 20 percent of Americans had errors on their credit reports, and in at least half these cases, the errors were severe enough to lower their credit scores. Furthermore, fixing the errors was not easy. In a 2015 study by the Federal Trade Commission, half of the consumers who attempted to dispute errors on their credit reports eventually gave up because the credit-reporting agencies made the process so difficult.
Of course, you also protect your credit score through your own behavior, by developing a sustainable budget and paying your bills on time. Having solid credit gives you the clout you need to confidently build your financial future.