A credit score below the acceptable threshold.
In the world of finance, having a good credit score is crucial. But what if you find yourself in a situation where your credit score is less than ideal? This guide offers practical steps to help those with bad credit improve their standing and pave the way to better financial opportunities.
Firstly, it's important to understand that the choice of which credit scoring agency a lender uses to assess creditworthiness, as well as the choice of credit scoring model, is the issuer's decision. In the United States, the two widely used credit score types are FICO and VantageScore, each with their own scoring models and credit scoring ranges.
As of October 2024, the average FICO credit score in the U.S. stood at 717 points. A FICO score below 670 falls in the fair or poor range, which is considered below average and may be considered subprime by lenders. Meanwhile, a VantageScore below 660 is considered a subprime credit score, with scores below 500 deemed very poor.
So, what can you do to improve a bad credit score? Here are some key actionable steps:
- Apply for a secured credit card. This requires a refundable security deposit as collateral and helps build credit by reporting your payments to credit bureaus. Using it for small purchases like gas and paying off the balance monthly is effective.
- Know and monitor your credit score to identify cards suited for your profile, including those that have no annual fees and sometimes offer rewards even for bad credit.
- Maintain responsible credit behavior by paying bills on time, keeping credit utilization low (ideally below 15-30%), avoiding multiple credit applications in a short time, and keeping old accounts open to preserve credit history.
- Consider alternative credit cards like the Chime Credit Builder Visa or Grow Credit Mastercard, which are designed for bad or no credit and have easier approval standards.
- Understand why previous applications were rejected to better target credit cards you are likely to qualify for and avoid unnecessary hard inquiries that can temporarily lower your score.
Following these strategies can gradually improve credit standing and pave the way to qualifying for unsecured credit cards with better terms.
Remember, improving a bad credit score isn't just about qualifying for credit cards. Having a bad credit score can lead to less favorable outcomes with lenders, landlords, and possibly employers. It can also lead to higher insurance premiums, tougher time renting an apartment, restricted career opportunities, and utility deposits.
To improve a bad credit score, one can check their credit reports, avoid late payments, lower their credit utilization ratio, become an authorized user, sign up for a secured credit card, look into credit builder loans, and make consistent on-time payments.
In conclusion, improving bad credit is possible with dedication and responsible financial habits. By understanding the factors that affect your credit score and taking proactive steps, you can work towards a brighter financial future.
- To help improve your personal-finance situation, consider applying for a secured credit card, which requires a refundable security deposit and can help build credit by reporting your payments to credit bureaus.
- Maintaining responsible personal-finance behavior, such as paying bills on time, keeping credit utilization low, and avoiding multiple credit applications, can gradually improve your credit score and lead to better financial opportunities.
