- What is a Good Credit Score & How It Impacts You
- How to Access & Read Your Credit Report
- How to Improve Your Credit Score In 30 Days [Checklist}
Table of Contents
- Understanding Your Credit Score
- What is a Good Credit Score
- How a Credit Score Impacts You & Your Family
- What Credit Score is Needed to Buy a Car?
- What Credit Score is Needed to Buy a House?
- How to Access & Read Your Credit Report
- How to Build Credit
- How to Improve Your Credit Score [Checklist]
- We're Here to Help
Given the influence credit scores have on our lives, it may seem impossible that improvements can be made in just 30 days. Truth be told, members of the community who want to qualify for a car loan or mortgage can make significant credit score improvements relatively quickly. Your credit score ebbs and flows based on repayment history, credit utilization, income, and other wide-reaching factors. By knowing how a credit score is determined and how to make positive changes, it is possible to raise your credit score significantly in 30 days.
Understanding Your Credit Score
Members usually think about their credit score in terms of borrowing power. Beyond the current credit score number, the fine details rarely matter to consumers. It may come as something of a surprise, but the more you know about the metrics involved, the better your chances of successfully raising your credit score.
A credit score usually refers to someone’s “FICO Score,” and it usually involves a number ranging from 300 to 850 that indicates your creditworthiness. Consumers do not necessarily apply to one of the three major reporting organizations to have a number assigned. Rather, this occurs organically as you take out loans, accept credit card offers, and repay these outstanding or ongoing debts.
Beyond debt repayment history, organizations that determine your credit score also look at debt-to-income ratios, the number of active accounts, and other factors. Based on these, credit bureaus project a lower credit score number for people with poor creditworthiness and a higher credit score number for those who repay debts on time, have appropriate debt-to-income ratios, and have enough experience handling debt correctly to prove creditworthiness.
What is a Good Credit Score?
It’s important to understand that lenders have different loan qualifying criteria. Local credit unions typically offer highly competitive rates and are known to work especially hard to help community members, even those with less-than-perfect credit. That being said, the sometimes subtle differences between qualifying for a car loan, mortgage, or low-interest credit card can prove complicated. The practical answer to “what is a good credit score” rests on the lender’s criteria. Many lending institutions rank credit score criteria like the following.
- Poor: 300 to 579
- Fair: 580 to 669
- Good: 670 to 739
- Very Good: 740 to 799
- Excellent: 800 to 850
Lenders generally consider people with a credit score of 670 or higher as low-risk borrowers. Those with lower scores under 670 may be viewed as “subprime borrowers” and be subject to higher interest rates and less flexible repayment terms. The higher your FICO score, the more likely you are to qualify for low-interest loan products. That’s why understanding the details about how to build credit and increase your FICO score are crucial to you and your family’s financial health and wellness.
If you are looking for a more in-depth explanation of credit score ranges, review our blog, "What is a Good Credit Score? Credit Score Range Explained".
What is a FICO Score
The Fair Isaac Corp introduced the FICO score in 1989 as a way to quantify consumer creditworthiness. The terms “FICO score” and “credit score” became relatively interchangeable despite other organizations issuing different brands. The majority of FICO scores follow the 300 to 850 range, with some industry-specific scores starting as low as 250 and peaking at upwards of 900.
But for practical purposes, a consumer who wants to know how to build credit and increase their FICO score may be best served by understanding how the number is calculated. These are the baseline factors that influence your FICO score.
- Repayment History: The three major credit reporting agencies typically base 35 percent of your FICO score on repayment history. This ranks as the largest quantifiable portion of the equation.
- Debt Relative to Credit Limits: How much you borrow against existing credit limits also plays a large role. Credit reporting outfits assign a 30 percent value to credit usage when determining a FICO score.
- Age of Accounts: The average age of your accounts and the length of time you’ve established credit has a 15 percent influence on your FICO score.
- Credit Applications: When people apply for loans or credit cards, a “hard inquiry” or “hard pull” is made on your history. These pulls on your credit score account for 10 percent of the calculation and can negatively impact a FICO score for up to six months.
- Forms of Credit: Approximately 10 percent of a FICO score involves the mixed type of accounts. Usually considered a positive, possessing credit cards, revolving lines of credit, and level repayment loans such as a mortgage indicates robust and diverse financial health.
When researching your credit score, it’s not unusual to discover the three major reporting bureaus issue slightly different FICO scores. That’s largely because Equifax, Experian, and TransUnion sometimes work from different reporting data. A local lender may weigh one credit reporting bureau’s FICO score more favorably than another or consider an average. But regardless of how lenders use their discretion, a FICO score has a significant impact on you and your loved ones.
If you are looking for a more in-depth explanation of the difference between a FICO score and a credit score, review our blog, "What is a FICO score? FICO Score vs Credit Score".
You Can Do This!
Take the first step towards raising your credit score today!
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How a Credit Score Impacts You & Your Family
The idea that simply a number generated by people at a credit bureau you have never met could profoundly impact your family seems counterintuitive. Believe it or not, the purely mathematical decisions made at Equifax, Experian, and TransUnion can prove incredibly personal.
Consider a scenario in which you need to borrow a substantial amount of money to cover the costs of a family member’s surgery. Imagine your children require braces, and you don’t have adequate dental coverage. What would you do if illness or injury sidelined the family’s primary wage earner for months?
These heightened scenarios would likely task you with securing a personal loan or home equity loan to cover the expenses. However a subpar credit score could result in you not qualifying for a standard loan product. If the credit bureaus assign a poor FICO score, you may have to borrow an extremely high-interest loan product because lenders see you as a lending risk.
It may be relatively easy to shrug off seemingly rare or extreme situations that theoretically put families in difficult positions. But those same principles hold true for ordinary borrowing practices as well such as qualifying for a mortgage or car loan. Higher credit scores mean lower more affordable borrowing options.
In addition to higher interest rates and limited loan solutions, low credit scores can impact other aspects of daily life including rental applications, job opportunities requiring financial management skills, and mobile phone contracts.
While some families turn to payday loans when times get tough, you should review our recent blog, "A Better Alternative to Payday Loans in OKC Is Allegiance," and keep reading this guide to see what alternatives exist. Better solutions are out there!
What Credit Score is Needed to Buy a Car?
A strong connection between your credit score and car loan opportunities exists for all lenders. Knowing your FICO score and discussing it with a loan professional before applying for a car loan is essential. You want to maximize your credit score to not only qualify for a car loan but also enjoy the best possible interest rate and repayment terms. These are things working families need to know when applying for an auto loan.
- Average Scores: When purchasing a pre-owned automobile or leasing a car, the average credit score hovers around 665. Families who secure loans for new vehicles typically possess scores of around 732.
- Car Loan Financing: Nearly two-thirds of all car loan borrowers enjoyed a credit score of approximately 661. Family members in the 501 to 600 range accounted for one-third of all auto loans. Only 2 percent of people with a FICO score under 500 typically secure a car loan.
A modest or relatively low credit score may not necessarily prevent families from qualifying for a truck, SUV, or car loan. Some lenders offer increased flexibility when large down payments and sound repayment histories are involved. What credit score is needed to buy a car may be a relative question, to some degree. But the relationship between a FICO score, interest rates, and repayment terms has a direct and discernable financial effect on you, your budget, and your paycheck.
For tips on how your credit score impacts your monthly car payment, review our blog, "What Credit Score is Needed to Buy a Car?"
What Credit Score is Needed to Buy a House?
Buying a home usually ranks as the largest financial investment in a family’s lifetime. You and your loved ones may need to save up for a 20 percent down payment and draft a monthly budget before applying for a mortgage to ensure the place you call home remains affordable.
Working families may want to consider their ideal mortgage program when wondering what credit score is needed to buy a house. Although your credit score likely opens the door to a variety of loan products, higher credit scores can be a key to selecting top-tier options. If you are thinking about purchasing a family home and applying for a mortgage, these are specific loan requirements to consider concerning your credit score.
- Conventional Loans: This class of non-government secured home loans is generally available to borrowers with reasonably high credit scores. Along with having an adequate cash down payment, qualifying for a conventional loan often calls for a credit score of 620 or higher. Applicants with scores under 620 may be denied or only qualify for mortgages with higher interest rates.
- FHA Loans: Backed by the Federal Housing Administration, this government-supported home loan program helps cash-strapped community members. To qualify for an FHA loan, borrowers generally must possess a credit score of 580 or greater. Families who prefer an FHA home loan with higher credit scores may secure lower interest rates.
- VA Loans: This mortgage program is open to men and women who served in the military. A type of “thank you for your service,” qualified servicemembers, veterans, and surviving spouses can borrow 100 percent of the home’s value. Although the program doesn’t require a specific credit score, private lenders generally weigh a FICO score in terms of risk.
These and wide-reaching other mortgage programs task professionals with weighing the risk involved in approving an application. Their professional decision has a great deal to do with your FICO score. Depending on approval, denial, or the interest rate, your family will be affected by how much money goes towards the loan payment for many years.
For tips on how your credit score impacts your monthly mortgage payment, review our blog, "What Credit Score is Needed to Buy a House?"
How to Access & Read Your Credit Report
People are often taken back to discover they are legitimately entitled to a free copy of their credit report every 12 months. That’s correct, Equifax, Experian, and TransUnion are required to meet requests filed by consumers without charging a fee once per year.
Gaining access to your credit report is not particularly difficult. Reading the sometimes lengthy document requires a little insight. But once you know its fundamentals, a credit report is not nearly as overwhelming as it first may appear. These are categories to review if you want to quickly improve your credit score.
- Personal Information: Errors can occur in your credit report. Check the spelling of your name, Social Security number, date of birth, employment history, and other elements to ensure the bureau has the pertinent facts about you correct.
- Financial Accounts: Review the list and details of accounts such as credit cards, mortgages, and car loans, among others. Check these against the dates you opened them, payment history, and other issues for accuracy.
- Credit Inquiries: Hard pulls are made each time you apply for a credit card or loan. There will be a detailed list of credit report inquiries. Consider these against only applications you completed, and credit report checks you authorized.
- Public Records: The government has been known to make an occasional mistake. Review the credit report to see if a debt has been listed as overdue. It’s also critical to make sure any bankruptcy filing that has timed out has been removed.
Reading a credit report is not rocket science, but it does require some patience. By taking one section at a time and examining each for accuracy, you are well on your way to utilizing the credit report as a valuable tool for improving your credit score.
For more tips on what to review in each section of your credit report, review our blog, "4 Credit Report Sections You Can't Ignore".
You Can Do This!
Take the first step towards raising your credit score today!
Download your free copy and send it to your email inbox!
How to Build Credit
Members of the community who rely heavily on cash or are new to the workforce sometimes lack the credit history and credit score needed to qualify for favorable loan products and interest rates. This tends to be a challenge for new college graduates and people who feel pressured by debt. It may seem counterintuitive, but the best way to build credit is by taking on manageable debts such as a credit card or a credit builder loan, (also called a secured loan), in addition to opening a checking account. These are viable steps on how to build credit without feeling overwhelmed.
- Apply for a credit building, low-interest credit card. Use the credit card to pay monthly bills and request a credit limit increase after paying the balance off monthly.
- Apply for a short-term credit builder loan and pay it off on time.
- Utilize Allegiance Credit Union's free financial coaching. Our financial coaches are available to help you create a budget, manage your debt, review your credit report, and more! Tell them you are an Allegiance Credit Union member and your sessions are free of charge!
Establishing credit remains the first step to a good FICO score. Without incurring any significant debt, borrowers can build credit and position themselves for larger lending opportunities like a low-interest mortgage or low rate home equity loan with favorable repayment terms.
If you want to learn more about using credit cards to build your credit, review our blog, "How to Build Credit With a Credit Card."
Curious if a Credit Builder Loan is the right fit for your finances? Review our blog, "Is a Credit Builder Loan Right for You?"
How to Improve Your Credit Score
The million-dollar question for many borrowers revolves around how to improve your credit score quickly. It’s very possible to make significant increases to your FICO score in 30 days or less. That being said, you will need to drill down on items that impact your credit score and take proactive measures. The following strategies can help you achieve your goal of raising your credit score to improve your chances of qualifying for a personal loan, home equity line of credit, or mortgage with the best possible rates and terms.
▢ 1. Request a Copy of Your Credit Report Today
The Federal Trade Commission outlines three ways you can get a free copy of your credit report once annually. Rather than go to Equifax, Experian, and TransUnion individually, the Annual Credit Report Request Service can streamline the process. These are the three ways to get a free copy from each of the three credit report bureaus.
- Visit www.annualcreditreport.com and fill out the online forms.
- Call (877) 322-8228 and request the copies.
- Send a snail mail request to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.
▢ 2. Look for Negative and Inaccurate Reporting
Thoroughly vet each credit report for potential errors and inaccurate information. Accounts that have mistaken delinquencies or show higher than actual credit usage negatively impact your FICO score. It’s also not impossible to have someone else’s misstep land on your credit report.
▢ 3. Pay Attention to Credit Inquiries
Unauthorized hard credit report pulls lower scores for months. If, for example, you recently shopped for a used car and the dealership ran a credit check without your knowledge, ask to have it removed. You may also be doing the next car shopper a favor by ending a potentially unscrupulous practice. Simply use the credit bureaus’ dispute system which requires the creditor to verify that you gave them permission to view your credit file. It’s likely they can’t. Your credit scores will improve quickly if removed.
▢ 4. Pay Off Credit Card Debt
The average American carries more than $5,000 in credit card debt. Lowering credit card debt can have a prompt effect on a credit score. By paying it down or clearing out balances altogether, borrowers reduce their credit utilization, debt-to-income ratio, and build credit. Paying off credit cards can make a large difference to your credit score number.
▢ 5. Negotiate with Collection Agencies
If you have past due accounts and lack the revenue to bring them up to date, creditors are generally willing to negotiate reasonable terms. Contact the company and explain your real-life financial constraints. Work out a repayment schedule that fits your monthly budget. The caveat is to make sure the creditor posts that your account is back on track and enjoys on-time repayment. Removing these types of blemishes can quickly revive a credit score.
▢ 6. Call Creditors About Late Payments
If you have accounts that are currently in repayment, it’s not impossible to persuade creditors to remove past missteps. Once credit cards, checking accounts, or loans are on track, make a formal request to delete late payment reports. The professionals who work in these companies are generally kind people who feel good helping community members making a good-faith effort.
▢ 7. Limit Credit Inquiries
If you are considering applying for a credit card, car loan, or mortgage, delay any hard credit inquiries until you feel comfortable with a lender. Conduct due diligence regarding interest rates, terms, and do the math on fees. Credit unions usually offer among the most favorable interest rates, low fees, and reasonable terms. After speaking with a loan professional, consider soft inquiry pre-approval when house shopping. When the time is right, allow one lender to make the hard credit inquiry.
▢ 8. Make Payments Count
If you have fallen behind on payments or credit utilization remains too high, one of the quickest ways to improve a credit score involves paying off accounts. That seems simple on the surface, and it usually isn’t complicated. But if an account has been sent to collections, that move hurts your credit score. When making payments, ask the creditor for a pay-for-delete agreement. This strategy tasks the creditor with removing the account from collections status. That, in turn, reverses the negative effect on your credit score. If a creditor stubbornly won’t negotiate a pay-for-delete arrangement, prioritize those who are willing to work with you first.
▢ 9. Dispute Negative Info
To have erroneous information on a credit report corrected, consumers must file a formal request in writing. Although you might want to call up and give someone an earful, that won’t help improve your credit score. Instead, type out precisely what the negative information involves. Explain why it’s wrong or why it should be posted more favorably. For example, an old bankruptcy might still show up even though it has legally timed out. For more information, the Federal Trade Commission consumer advice platform has detailed information and forms available for all three reporting bureaus.
▢ 10. Become an Authorized User
One of the ways people without established credit can build their history and score involves getting added to an existing credit card. If a spouse or family member puts you on an account in good standing, it can help boost your credit score.
▢ 11. Do Not Make Any Additional Credit Purchases
Reversing the credit utilization trend goes a long way toward improving scores. Exercise personal restraint and stop swiping plastic or shopping online. Focus on lowering credit balances by using more cash on a monthly basis. Cash is certainly king when you’re strategically improving a credit score.
▢ 12. Pay Your Bills On Time
On-time bill payments can only help elevate FICO scores. Consider working out a monthly budget that ensures you can cover all of the utilities, rent, loans, and at least minimum monthly credit card payments. Consumers people are often surprised at how quickly their credit score improves after making across-the-board on-time bill payments.
We're Here to Help!
Possessing a good credit score ranks among the most important assets we possess. It remains an essential key to finding affordable loan options allowing families to enjoy reliable transportation, a comfortable home, and a safety net of access to cash for the times we need it most. Being able to secure favorable interest rates, terms, and qualify for home loan programs can positively affect our quality of life. If you are working diligently to improve your credit score, you are not alone.
Allegiance Credit Union is ready to help you reach financial freedom! If you are ready to apply for a Credit Builder Loan, apply for a Secured Credit Building Credit Card, or open a Second Chance Checking Account, we have the right solution to help you succeed.
If you are unable to get your finances back on track, consider utilizing Allegiance's free Money Management services! Our financial coaches are available to help you create a budget, manage your debt, review your credit report, and more! Tell them you are an Allegiance Credit Union member and your sessions are free of charge!
We are here, by your side, ready to help you achieve your financial goals. If you are unsure which solution is best for your unique financial situation, contact Allegiance Credit Union today and speak to a knowledgeable loan professional. We also have free financial coaching available for our members through BALANCE. These counseling services range from money management and housing to debt management and everything in between. They are also trained to review credit reports. Click here to learn more.