Keep Old Accounts Open And Deal With Delinquencies
The age-of-credit portion of your credit score looks at how long youve had your credit accounts. The older your average credit age, the more favorably you appear to lenders.
If you have old credit accounts that youre not using, dont close them. Though the credit history for those accounts would remain on your credit report, closing credit cards while you have a balance on other cards would lower your available credit and increase your credit utilization ratio. That could knock a few points off your score.
And if you have delinquent accounts, charge-offs, or collection accounts, take action to resolve them. For example, if you have an account with multiple late or missed payments, get caught up on what is past due, then work out a plan for making future payments on time. That wont erase the late payments but can raise your payment history going forward.
If you have charge-offs or collection accounts, decide whether it makes sense to either pay off those accounts in full or offer the a settlement. Newer FICO and VantageScore credit-scoring models assign less negative impact to paid collection accounts. Paying off collections or charge-offs might offer a modest score boost. Remember, negative account information can remain on your credit history for up to seven yearsand bankruptcies for 10 years.
Your Credit Score Doesn’t Start At Zero
Starting with no credit score doesn’t mean your score is zero. Rather, your score simply doesn’t exist. That’s because your credit score is calculated only at the moment that a lender, credit card issuer or other entity requests it to check your creditworthiness. If you haven’t yet built a credit history, there’s no information on which to base that calculation, so there’s no score at all.
Once you begin to establish a credit history, you might assume that your credit score will start at 300 . But it’s highly unlikely your first credit score will be that low, unless you start off with very poor credit habits. Nor will your first credit score be the highest level . When you’re new to using credit, you simply don’t have a robust enough credit history to earn the highest score.
What Is The Best Credit Card For Building My Credit
When it comes to choosing a credit card, there are a ton of options.
It seems that every store you walk into has a promotion if you sign up for a store credit card. Every gas station offers a few cents off per gallon if you get their credit card, and, of course, there are countless other options out there for rewards credit cards.
However, if youre just starting out and looking for the best credit card for building your credit, then definitely go with a straightforward spending credit card through a local bank or credit union.
OneAZ Credit Union has four different credit cards to choose from, with the Visa® Platinum Credit Card being the perfect choice to get started with. This card will help you achieve your main goal of building your credit.
While rewards credit cards can be great, the goal when youre starting out is to simply build your credit.
The Visa® Platinum Credit Card will help you to do just that.
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Can You Have A Credit Score Of Zero
No you cannot have a zero credit score because the industry-standard range begins at 300 and reaches up to 850 for people who meet the minimum standard for a numerical rating.For example, suppose a lender looks at a persons consumer report with insufficient historical information. In that case, they might see a message stating No Record Found or Too New to Rate instead of zero.In another instance, a lender reviewing an applicant that recently filed bankruptcy might see a 300 result rather than zero.
What Credit Score Do You Start With
As someone whos never taken any form of credit, you, in all likelihood, have no credit score at all. This is because your credit score depends primarily on your payment history and credit utilization. These factors are not established until you obtain your first credit product.
Just how quickly you get your first credit score depends on the credit-scoring model. While calculating a VantageScore score is possible soon after your first credit account appears on the report, getting a FICO credit score requires that the account should be at least six months old. In both cases, the base credit score is 300. However, the starting credit score of most people is typically higher because scores of around 300 are associated with very poor management of credit.
Do You Need Credit to Get a Credit Score?
Its not necessary for you to get credit to start building your credit history. Some companies such as Experian, eCredable and LevelCredit give you the ability to report your qualifying utility, phone, online streaming services and rent payments to credit bureaus.
- Experian Boost helps add eligible bill payments to your Experian credit report.
- eCredable reports eligible bill payments to TransUnion.
- LevelCredit reports rent payments to TransUnion and Equifax and eligible utility and other bill payments to TransUnion.
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Why Does A Credit Score Matter
Most prospective lenders, insurance providers, landlords, and service providers use a persons credit score to determine their risk level. It shows them how reliable a person is and how likely they are to make payments on time.
Your credit score is also used to determine loan and credit card interest rates, insurance premium rates, and rental deposit amounts. Though, if you havent established credit, lenders are more likely to decline your applications because they consider you a gamble.
Apply For A Secured Credit Card
A secured credit card requires a security deposit usually around $200 that usually serves as your limit. Because of this, theyre less risky to credit card issuers and are fairly easy to qualify for.
Once you have the secured card, you can use it for small purchases. Each month, youll need to make at least the minimum payment on the card. The card issuer will report your payment activity to the bureaus, resulting in a credit score increase. However, if you fail to make a payment, the issuer will use the deposit instead.
Secured cards usually come with higher interest rates than unsecured cards, so its best to pay off your balance in full each month.
Secured credit cards tend to be less of a risk for issuers since you yourself are providing a security deposit.
Best Secured Card for No Credit
The OpenSky Secured Visa Credit Card is best for no credit borrowers since it doesnt require a credit check. The issuer reports to all three reporting bureaus and is a great way to establish credit.
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How To Check Your Credit Score For Free
Once you understand how your credit score is calculated, you should check your score. This will give you insight into what products you may qualify for and what interest rates to expect. If you have a low score, you can take steps to improve it. If you have a good or excellent score, you can work to maintain it.
Checking your credit score doesn’t hurt your credit, and even if you’re not applying for a new card or a loan, it’s smart to get into the habit of checking it regularly.
Most credit card issuers provide free credit score access to their cardholders, making it easier than ever to check and know your score.
Some issuers, such as Citi and Discover, provide free FICO Scores, while others, such as Chase and Capital One, provide free VantageScores.
You can check your credit score in less than five minutes by logging into your credit card issuer’s site or a free credit score service and navigating to the credit score section. There will typically be a dashboard listing your score and the factors that influence it.
FICO and VantageScore will pull your credit score from one of the three major credit bureaus, Experian, Equifax or TransUnion.
Here are some free credit score resources that you can access even if you don’t have a credit card yet:
- Chase Credit Journey: Free VantageScore from TransUnion
- Discover Credit Scorecard: Free FICO Score from Experian
Ensure That You Have A Strong Credit Score
One of the first and most important things when seeking a mortgage is to ensure that you have a strong credit score. This will show the lenders that you are responsible when it comes to paying your dues in time and that you will treat your debt with the same level of precision. Furthermore, a high credit score is also very likely to bring you a better interest rate. While you can still get a loan with low credit, chances are that your interest rate will be much higher.
You can improve your credit score in several ways, such as ensuring that you make your payments on time, bringing any past-due accounts current if you can, checking for errors in your credit score as they do happen, and might reduce your score without it being your fault. Lastly, keep a close eye on your credit score, and check it at least three to six months before you apply for a mortgage. See the list of all the factors that are impacting it, whether in a good or a bad way and try to do whatever you can to keep it in check.
If your credit score is really bad, you should consider applying for a secured credit card to help build your credit score.
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Aim For 30% Credit Utilization Or Less
refers to the portion of your credit limit that you use at any given time. After payment history, its the second most important factor in FICO Score calculations.
The simplest way to keep your credit utilization in check is to pay your credit card balances in full each month. If you cant always do that, then a good rule of thumb is to keep your total outstanding balance at 30% or less of your total credit limit. From there, you can work on whittling that down to 10% or less, which is considered ideal for raising your credit score.
Use your credit cards high balance alert feature so you can stop adding new charges if your credit utilization ratio is getting too high.
Another way to improve your credit utilization ratio: Ask for a credit limit increase. Raising your credit limit can help your credit utilization, as long as your balance doesnt increase in tandem.
Most credit card companies allow you to request a credit limit increase online youll just need to update your annual household income. Its possible to be approved for a higher limit in less than a minute. You can also request a credit limit increase over the phone.
Why Does A Good Credit Score Matter
A good or excellent credit score will save most people hundreds of thousands of dollars over the course of their lifetime. Someone with excellent credit gets better rates on mortgages, auto loans, and everything that involves financing. Individuals with better credit ratings are considered lower-risk borrowers, with more banks competing for their business and offering better rates, fees, and perks. Conversely, those with poor credit ratings are considered higher-risk borrowers, with fewer lenders competing for them and more businesses getting away with high annual percentage rates because of it. Additionally, a poor credit score can affect your ability to find rental housing, rent a car, and even get life insurance because your credit score affects your insurance score.
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How To Get A Good Credit Score
Good credit habits, practiced consistently, will build your score. Heres what you need to do:
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Pay bills on time. This is important because payment history has the largest impact of all the factors in your score. A missed or late payment can do tremendous damage to a credit score and it can stay on your credit report for up to seven years.
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Try to keep your credit card balances well below your credit limits aim for, and lower is better. High utilization dings your score, but the damage will fade when you’re able to reduce your balances and the lower utilization shows up on your credit reports. You also may be able to lower utilization by getting a higher credit limit or becoming an authorized user on a lightly used card with a large limit.
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Keep credit accounts open unless there is a compelling reason, such as high fees or poor service, to close them. Keeping older accounts open helps your average age of accounts, which has a small influence on your score. Also, closing an account cuts into your overall credit limit, driving up your credit utilization.
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Avoid making several credit applications in a short time frame. Credit checks for the purpose of credit decisions can cause a small, temporary dip in your score, and several in a short time can add up. That’s why it’s important to research credit cards before you apply.
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Monitor your credit reports and dispute information you believe is incorrect or too old to be included .
What Factors Determine Your Fico Score
The FICO score takes five categories into consideration when factoring your three-digit score: Payment history, amounts owed, new credit, length of credit history, and credit mix. The score breakdown below shows you how much each section affects your total score:
- Payment history: 35%
- Length of credit history: 15%
- New credit: 10%
If youre trying to improve your credit score, the best thing you can do is make on-time payments and reduce the amount of total debt you owe. Those two categories make up 65% of your total score.
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How To Improve Your Credit Score If You Have No Credit History
Building good credit doesn’t happen overnight. Instead, you need to consistently practice responsible credit behavior, such as paying bills on time and limiting your credit utilization ratio.
Here are some credit building options that can help improve your credit score over time:
- Option 1: Become an authorized user
- Option 2: Get credit for paying monthly utility and cell phone bills on time
- Option 3: Open a college student card
Review Your Credit Reports
To improve your credit, it helps to know what might be working in your favor . Thats where checking your credit history comes in.
Pull a copy of your from each of the three major national credit bureaus: Equifax, Experian, and TransUnion. You can do that for free once a year through the official AnnualCreditReport.com website. Then, review each report to see whats helping or hurting your score.
Factors that contribute to a higher credit score include a history of on-time payments, low balances on your credit cards, a mix of different credit card and loan accounts, older credit accounts, and minimal inquiries for new credit. Late or missed payments, high credit card balances, collections, and judgments are major credit score detractors.
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Next Steps: Build Excellent Credit
Once creditors start reporting information to the credit bureaus, the credit bureaus can use that information to create credit reports. Scoring companies can then analyze your credit reports to create credit scores.
Dont worry if you cant get a FICO® credit score immediately, because you need to have an account thats been opened for at least six months on your credit report before youre eligible for a FICO score. In contrast, VantageScore can provide you with a score after just one month. You can access your free VantageScore 3.0 credit scores from Equifax and TransUnion on Credit Karma anytime from any device.
As you start building credit, your financial goals may go beyond simply getting a credit score. Good or excellent scores can help you qualify for the best offers and not get held back by a lack of credit. Here are some steps you can take as you work toward building excellent credit.
While there are many intricacies to credit, you dont need to know all the ins and outs to build excellent credit. Start by opening accounts with creditors that report to the main consumer credit bureaus, paying your bills on time and limiting your credit card usage and, over time, you can get there.
What A Good Credit Score Can Get You
Having good credit matters because it determines whether you can borrow money and how much you’ll pay in interest to do so.
Among the things a good credit score can help you get:
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An unsecured credit card with a decent interest rate, or even a balance-transfer card.
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A desirable car loan or lease.
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A mortgage with a favorable interest rate.
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The ability to open new credit to cover expenses in a crisis if you don’t have an emergency fund or it runs out.
A good credit score helps in other ways: In many states, people with higher credit scores pay less for car insurance. In addition, some landlords use credit scores to screen tenants.
So having a good credit score is helpful whether you plan to apply for credit or not.
If your credit score is below about 700, prepare for questions about negative items on your credit record when shopping for a car. People with major blemishes on their credit are routinely approved for car loans, but you may not qualify for a low rate. Read about what rates to expect with your score.
You dont need flawless credit to get a mortgage. In some cases, credit scores can be in the 500s. But credit scores estimate the risk that you wont repay as agreed, so lenders do reward higher scores with lower interest rates. Read about your mortgage options by credit score tier.
Landlords or property managers generally aren’t looking for immaculate scores. They are interested in your credit record. Learn more about what landlords really look for in a credit check.
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