Why is debt and credit so hard to understand?
Your credit score is an indication to creditors and lenders on how likely you are to meet your obligations and pay your debts. The higher your score, and in most jurisdictions, the closer you get it to 900 the better your credit is. In most places having a score of 700 is going to be what you are aiming to achieve.
But why is that important?
The lower your score the more likely you are believed to skip out, or fail on your obligations. So if you have a score of 400 or 500, it doesn’t make you a bad person but it does mean you’ve likely had a few accidents when paying your bills. These accidents are all accumulated and then reported to your credit bureau. The credit bureau assigns you a number that in essence puts you in a box and tells anyone who sees it how likely you are to pay your bills.
Have a score in the 500’s? it’s believed that you will, not might, not pay your bills. If it’s in the 600’s you may qualify for a car and a mortgage but the rates may not be so good. All the way to 700? Fantastic now people will start to recognize that you are trustworthy to lend to.
What about the extremes?
300 is likely that you rarely pay your bills on time, if ever, and that you may be on the road to financial ruin. And at 900, it’s often you may not have enough credit to determine whether a lender can realistically lend to you. Is it any wonder that understanding your credit can be so complicated?
At the end of the day having poor credit is a moment in time, it’s not a long term decree on who you are. You can change and fix it.
There is a solution and a way to figure things out! Firstly, you need to determine the one big fact, do you pay your bills on time? Next you need to determine if you have too much credit and thus too much debt. Once you know what the issues are you can start to attack them and correct them. It will also be important to not over use your credit, in simple terms you want to keep your credit limits at or below 35% of whatever your limit is.
If you're not in the 700's yet, don't worry. You can be soon.
What you can do to go from the lower scores to the 700's:
1. Set up an auto-pay on your card to pay your bills.
2. Keep your credit limits at or below 35% of what your limit is.
3. Apply for the SCORE Card by DND.
4. Pick up a copy of our latest book for budgeting, strategies and worksheets.
For more information tips, tools and ways to not just improve your credit but also strategies to become debt free, go grab a copy of my book Raise Yourself From Debt To Wealth.