When you are thinking of applying for a credit card or a loan, your credit score will matter a lot.
So if you have been turned down because of a poor credit score then you need to understand what that means and how you can fix it.
In general, poor credit score is the one that falls below 630 on the FICO score range of 300 to 850. It might be the result of late payments, high credit utilization ratio, too many hard inquiries or a previous bankruptcy.
If your score is in a bad shape, the first effect is that you will be turned down by most of the lenders but that’s not it. Let’s have a look at some of the ways in which a low score will impact you and your lifestyle.
What a Poor Credit Score Does?
Even if you are approved for a loan or credit card with a bad score, you will qualify for difficult terms and higher interest rates. One thing is for sure, you won’t be able to qualify for any 0% interest credit cards at all. Similarly, no lender would trust you enough to accommodate personal loan with single-digit interest rate.
Furthermore, you will not be able to enjoy the perk of skipping some utility deposits that are free for users with higher scores. You will find yourself paying more for auto insurance, car renting, or a house.
That’s nothing personal! Banks and financial institutes understand that you are not a bad person but if your credit report reflects that your finances are not stable than not many lenders would feel comfortable doing business with you. Consequently, companies that agree to help you out would do so on terms and conditions of their own choice.
Is There a Way To Improve Poor Credit Score?
Fortunately, a bad score does not mean you are stuck here for a life time. There is a lot you can do to improve your score fast. The first pro-tip is to become responsible with your spending behavior. What’s more? Let’s talk about them one by one.
1. Choose The Right Credit Card
Credit cards are a very helpful too when you want to fix a broken credit score. However, you will not be able to qualify for just any card. Therefore, you need to choose smartly from the limited options that you have.
A right approach would be to go for a secured card initially. This requires a security deposit but you might be able to avoid annual fee and enjoy some extra rewards as well. If you are good with maintaining your card, you will eventually be able to upgrade to an unsecured version.
2. Take Care of Payments Before Due Dates
Now that you have a credit card, the next step is to be on you best behavior when it comes to monthly payments. Credit cards let you loan an amount from the bank that you can return when feasible but it has to be before the due date.
Clearing payments on time is one the best ways to improve poor credit score. It lets the bank know that you can take care of your finances and they they can trust you with better terms and lower interest rates.
3. Stick To Low Credit Utilization Ratio
Experts always suggest that you should not use more than 30% of the credit that is available to you via the card. This is because exhausting the whole credit line or exceeding it shows that you are desperate for financial help. This is not a good sign and your credit score will take a dip because of it.
Just because you have a poor score right now does not mean you should be disappointed and give up the efforts to fix it. In fact, you can do it easily by following the tips above. Other than that, you should also keep a check on your credit report regularly to figure out what mistakes you are making and amend them one by one. Hopefully, you would soon be able to see a huge improvement in your credit score.
Miriam Caldwell is a dedicated & expert freelance writer to educate people about personal finance management and budgeting. She shared her knowledge and published the articles at TheBalance.com, GOBankingRates, and BlissfullyDomestic.com. Many financial institutes pick Caldwell as the brilliant source for educational personal finance content.