Although you may not know it, your credit score makes a major contribution to the way businesses see you, how much credit you can easily obtain, and how low your interest rates are. Also, did you know that some companies check credit scores before hiring individuals and many apartment owners check credit before renting to anyone? Yes, the world is beginning to revolve around your credit numbers. Especially as a startup, you want to raise your score as quickly and as effortlessly as possible.
While the average score has been reported by FICO to hover around the area of 704 for most individuals in the United States, there are many that have much lower credit scores. To help you identify how FICO categorizes the numbers, here is an easy to read list.
- Poor (580 and below)
- Fair (580-669)
- Good (670-799)
- Excellent (800+)
Statistically, if you are between the age of 18 and 34, you probably have a fair credit rating, while those aged 55 and above are shown to have the highest credit rating with a score of 729 or above.
Understanding the Ramifications
If you are like most Americans, unless you are starting a business, purchasing a new car, buying a home, or taking another big life step, you probably don’t think much about your credit rating. In the end, the low credit numbers can cost people across the United States hundreds of thousands of dollars each year in high interest rates. That is because the general rule is that the higher your credit score is, the lower your interest rate will be. Multiply the number of individuals across the United States that pay thousands of dollars extra on car or mortgage payments each year because of low credit scores, and the amount can be staggering.
Your FICO credit score is a combination of many things, but most often, the numbers reported by TransUnion, Experian, and Equifax contain the following information:
- Your payment history for a specified length of time.
- How long you have had credit.
- How often you use credit and on what items.
- The number of credit inquiries made to your account.
- How many different types of credit you have.
Understanding the System
Knowing how to raise your credit score quickly and efficiently is easy. here are some things you can easily do.
- Credit Utilization
This is an important consideration in your credit score and is weighted with a hefty 30% of the total. The mathematical formula is uncomplicated because it is simply how much debt you have balanced against your credit limit. If your cards are charged to their limit, or you owe extremely high amounts each month, you have a high credit utilization score. Since the score is tallied on each individual card, and then again overall, it is important to pay down your amounts in order to raise the credit score.
- Late Payment
With a weighted score of 35%, this credit consideration is the number one problem most credit card owners face. Each late payment can quickly influence your overall credit score and wreak havoc with the big steps you want to finance in life. If you miss a payment, make the payment and then contact the lender immediately and ask for a grace period on that single payment. If you have a long history with that lender, you can often find them willing to work with you. As a general rule, pay on time to get a high credit score and keep it.
- Credit Types
Sometimes the credit bureaus want you to have a variety of credit types. This can include a mortgage, credit card, student debts, and auto loans. Your ability to handle different types of credit can be important and is given a weighted score of 10%.
- Account Age
As your life needs change, so do the loans you take out. That may mean a store you once frequently shopped at no longer fits your needs, or that you only shop there once in a while. When that occurs, you are probably tempted to close the accounts you no longer use but doing so can charge against you. Account age comes with a 15% weight, so don’t close inactive accounts.
- Credit Inquiries
Every time a credit inquiry tags your account, your score can go down a few points. Those tags can do serious damage if you have nine inquires in a year, and your score goes down five points each time. Hard inquiries happen every time you apply for new credit, so be wary of how often you request new cards. One or two inquiries can make a difference of 10%.
By understanding how your credit scores are calculated and working with the five steps above, you can easily raise your credit score in no time at all. As your score rises, you can also see your interest rates fall, and that is something to smile about as you embark on your startup journey.