Simon Lichter, Communications Manager
Are you concerned that your credit score can’t be repaired? Or overwhelmed with where to even start on that journey? If you answered yes to either of those two questions, then this blog post is for you. The good news is that everyone can build their credit score. Take these three steps now to get started down the right path of building your credit score!
The first thing you need to do in order to build your credit score is to find out what your credit score is and how that will impact your borrowing ability. You can get a free credit score on this website. Then, use the chart below to see what range you fall in and what that score means for getting a loan. If you are in the red or under 580, you will face a challenge when trying to get lines of credit at low interest rates (see Step 2 for lenders to avoid). If you do have a low credit score and are seeking low-interest rates (despite being labeled a risky borrower), you can find affordable loans as places like Good Fund.
When building your credit score, avoid financially dangerous payday loan lenders. How to spot payday loan lenders? They have sleek signs that read: Instant Credit Approval or Get Cash Fast. These services will damage your credit because they often lead people to delay paying off their original loan. This inevitably leaves people stuck with only being able to pay the interest rates; these rates are typically 400% or more. Why is this an issue? Let’s find out together. If you take a loan with a payday loan lender for $100 at a rate of 400% and are required to pay it back in one month, you will find yourself with a repayment at the end of that month for about $133. People often get caught in this cycle multiple times, making the loan more expensive and harder to pay off. Also, keep in mind that there are two types of credit: good and bad. A good type of credit is purchasing a car at an affordable monthly payment. A bad type of credit would be buying furniture through a rent-to-own store. Rest assured that there are alternatives for borrowing money with low credit scores, such as with Good Fund, specifically for people with low to no credit scores that are seeking auto loans.
Lastly, when you’re trying to build your credit score, aim to have 30% or less of your available credit in use. For example, if you have a $1,000 credit card limit, try to keep your credit spending to $300 or less for each credit card billing cycle. You may find that getting a higher spending limit will help you maintain this 30% limit for your spending needs. Always make at least the minimum credit card payment and keep the deadlines on your calendar to ensure you make payments on time. You may be thinking, “Okay, I’ll just open more credit card accounts and keep them all at low spending.” That is clever thinking, though the only fool in that scenario will be you when you miss a payment, lose track of what you purchased recently, and so on. Take that clever thinking and put it to better use by following these three steps to building your credit.
Follow these tips and find yourself three steps closer to repairing your credit score! If you’d like your very own financial coach to help you tackle your credit concerns, you can sign up for support here.