12% of Americans have no chance of getting good loan terms


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When most of us go to take out a loan, we’re worried about getting the best interest rate possible, but those with bad credit are more concerned with whether they’ll get approved in the first place. If they are, they often have to take what they can get because few lenders want to work with them.

This is the reality 12% of Americans face, according to our recent study of Average Credit Ratings in America. They have VantageScores below 660, and to lenders this reads like a ballot filled with C’s and D’s. It’s not good. But luckily for these Americans, it’s not something they have to be stuck with forever.

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Bad Credit Makes Your Life Much More Difficult

A score of 661 or higher is considered a good credit score, depending on which scoring model you are considering. The two most common scoring models – the FICO® score and the VantageScore – both use ranges from 300 to 850, and the higher your score, the better.

Your credit score is based on your credit reports, which are a record of how you’ve handled borrowed money in the past. Lenders check your score before giving you any money because they want to make sure they get it back. If your score indicates that you might have a hard time paying off what you borrow, they will either refuse you outright or charge you higher interest. That way, if you default, they won’t come out as much as they would have if they’d given you a lower interest rate.

Credit scores come into play most often when talking about loans or credit cards, but more and more other institutions are using them as a measure of financial and overall responsibility. Landlords sometimes check the credit scores of potential tenants, and some employers may check applicants’ credit, especially if the job requires the employee to manage company or client funds. Even some cable and mobile phone providers check your credit score when you apply.

According to VantageScore, a score between 601 and 660 is considered fair or “close to the best.” Your credit card and loan applications may not be turned down if your score is close to prime, but you will likely pay much higher interest rates than those with higher credit scores. It depends on the lender, however. Each sets their own standards for acceptable credit scores.

If your score is 600 or less, you will find that few lenders are willing to give you the time of day, and owners or employers might ignore you in favor of other applicants. The only way to change this is to increase your credit score.

How to increase your credit score

Raising your credit score isn’t difficult, but it does take time and it helps if you understand the factors that influence it. Payment history is the most important factor in calculating your credit score, accounting for 35% of your score. It is therefore essential to avoid late payments.

Set reminders yourself or set up automatic payments when you can. If budget constraints are part of the problem, reduce your expenses or increase your income until you can make ends meet. Late payments stay on your credit report for seven years, but their effect wanes over time, so if you get into the habit of paying on time, you will start to see your score increase after a few months to a year.

Your credit utilization rate is almost as important as your payment history. This looks at how much of your available credit you charge on your credit cards each month. If your credit limit is $ 10,000 and your balance is $ 2,000, your credit utilization rate is 20%. Try to keep yours below 30%, as a higher ratio indicates more reliance on credit.

You can reduce yours by using your credit card less, increasing your credit limit, or paying your credit card bill twice a month. Your lender only reports your payments and new balance to the credit bureaus once a month, so if you pay yours off in the middle of the month and again at the end, it looks like you’ve used your credit card a lot less. than you did.

Limit how often you apply for new credit. Each time you apply for new credit, the lender will do a thorough investigation of your report and this will lower your score by a few points. It doesn’t matter if you are approved, but if you are denied you just have to hurt your score for no reason. There is a built-in exception for loan purchases, where any request made within 30 days is considered a one-time request to avoid penalizing you too much for normal comparison buying behavior.

Even if you follow all of the above steps, it will take a few months to a few years before you see a significant improvement in your credit score. You’ll have to wait until some of those old black marks are replaced with your new, more responsible credit history. But don’t be discouraged if you don’t feel like your score is improving fast enough. Stay the course and you will get there.

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