Understanding Credit Repair and Credit Score Ratings
According to Experian, about 17 percent of Americans have “very poor” credit rating, with a FICO (Fair, Isaac and Company) credit score falling below 580. People with this rating will most likely be required to pay a deposit for a loan, but sometimes, they may not be approved at all.
Around 20.2 percent, on the other hand, have “fair” credit rating, and are considered as subprime borrowers. This means that they may be approved for a loan but with slightly higher interest rates. A FICO score falling between 580 and 669 is considered “fair”.
A “good” rating includes those with a FICO score between 670 and 739. Applicants with this credit rating will most likely get a loan approved and fast. Based on statistics, only 8 percent of applicants with this score are likely to become delinquent in the future.
About 18.2 percent of Americans have credit scores of 740-799, which is considered to be in the “very good” range. They normally get above average deals and lower interest rates.
Surprisingly, there are more people in the “exceptional” range, with a score between 800 and 850. They say people in this range hardly need to apply for loans since lenders are the ones chasing after them.
Another type of credit scoring system used by lenders is the VantageScore, which offers slightly different ranges. Using VantageScore, a credit score between 300-549 is considered “very poor” (16.7% of people); 550-649 is considered “poor” (34.1%); 650-699 is said to be a “fair” rating (18.3%); 700-749 is said to have “good” credit rating (12.6%); while the “exceptional” people have scores between 750-850.
Negative Impacts of Bad Credit
In general, if you keep a bad credit for long, you will find it hard to perform financial transactions. Here are some implications of having a “poor” or “very poor” credit score:
- Loan Applications May Not be ApprovedCredit and loan companies understand that lending money to people is always a risk, but with a bad credit, the risk becomes unacceptably high. With a credit range below the “fair” range, you may find your loan applications getting denied.
- Higher Interest RatesThere are lenders who are willing to take high risks to approve loan applications for individuals with bad credit. Of course, there’s a catch. You may find an offer with a higher interest rate. For a short-term loan, this could work. Otherwise, you may want to find an alternative.
- Security DepositsParticularly with utility companies, like electric, phone and cable companies, they require applicants to put down a security deposit. A few loan companies do the same. Sometimes they would request a deposit and still offer you high interest rates.
- Difficulty In Getting an ApartmentLandlords have become meticulous with potential tenants that most of them start checking the applicant’s credit history before drafting the rent contract. They would love the rent to be paid on time, and having a bad credit seems to imply otherwise.
- Getting Employed May be AffectedThere are certain jobs that would require employees and applicants to have a good credit history. This is true with most financial institutions, or if the position you’re applying for is in the upper management or in the finance department.
There are other fields that are negatively affected by having a bad credit – higher insurance premiums, getting denied for a mobile phone contract, difficulty in purchasing a car or starting a business. Not to mention the numerous phone calls you would receive from debt collectors.
Reasons for Credit Repair
The best way to repair your credit is to stay on top of your credit report, pay your bills and loans on time, and maintain a good credit utilization ratio.
Sometimes, however, there may be some errors on your credit report, which can negatively affect your credit score. You can be paying your bills on time but still you fall below the “fair” credit rating, then you may need to perform credit repair. Here’s a few reasons for credit repair:
- Incomplete or Inaccurate InformationIndividuals are entitled to free credit reports every 12 months from all three credit reporting agencies – Experian, Equifax and TransUnion. Make sure to take advantage of it and that you know how to interpret your credit report. Upon checking, if you shall find any misinformation, no matter how small, you can submit a dispute. Take note that third party companies cannot correct erroneous information on your credit report. These errors can only be disputed.
- Fraud and Identity TheftIf you’re a victim of identity theft, part of your contingency plan should be to request for a fraud alert. This is a free notice placed on your credit report that alerts financial institutions that you may have been a victim of fraud or identity theft. You may contact any of the three credit bureaus and once you contact any of them, that agency will automatically send your request to the other agencies.
- BudgetingUnderstanding your own credit and spending history can help you identify which financial areas you need to focus more and which areas you need to cut down from. For example, do you really need to spend $1,500 on cable each year when you hardly watch TV? Do you really want to keep your gym membership when you visit the gym infrequently? Are you putting enough funds into the bank for your dream car or vacation? Is the car or the vacation really necessary?
- Lenders’ concernsIssues with credit card companies and debt providers are a top complaint for consumers. We are talking about scams springing from hidden charges, undisclosed fine print, or ridiculous interest rates or payment schemes. Some policies are too complicated and in the end, the consumers would just agree to it. Calculate your total debt versus how much you have already paid the lender and how much more you owe. If the difference is significantly huge, you may have to seek financial or even legal advice.