Credit scores are primary determinants of whether you get a credit card or not. Unsecured credit cards need you to have some credit scores, whether bad or good. However, as you will learn later, you can get a credit card without any credit history. Such cards are specifically essential to building your credit scores. Later on, you will know how to raise your credit score 200 points in 30 days.
But what are credit scores? Well, credit scores determine the creditworthiness of an individual. They show your ability to pay a loan as per the agreement with the lender. Every financial company must inquire about your credit scores before giving you a loan or unsecured credit card. That is called hard inquiry and usually shakes your credit scores slightly downwards. However, the scores go back to the original position with time.
You might be wondering where creditors get their credit scores. Well, every financial company reports your credit usage to the credit bureaus. We have three major credit bureaus in the US. They include Experian, Equifax, and TransUnion. Every credit bureau calculates the credit scores independently. However, they all use the FICO scoring model to come up with credit scores.
How do credit bureaus calculate credit scores?
Credit bureaus, as I mentioned earlier, are responsible when it comes to calculating credit scores. They use various pieces of information to come up with your credit scores and your overall credit report. Credit bureaus use the following information to calculate credit scores.
i) Payment history
The payment history is essential as it takes up to 35% of your overall scores. History shows how you have been paying your loans. If you have been doing it properly, then you are going to have a better credit history.
ii) Amount owed
Too many debts hurt your credit scores. You should have a low amount of debts to be on the safe side. The more debts you have, the lower your credit scores. The amount owed takes 30% of your credit scores. If anything, you should make sure that you maintain low debts. Utilize at most 30% of your credit limit.
iii) Length of your credit history
If you have been paying loans for a long time, you are likely to have a long credit history. That takes up to 15% of your overall scoring. However, you might be having a long credit history but are full of debts. In such a case, your credit history will not count much.
iv) Credit mix
If you mix credits such as a mortgage, personal loans, and so on, then you will be contributing to 10% of your overall credit scores. You should ensure that you pay appropriately for the 10% to count well.
v) New credit
New credit also contributes 10% of your overall scoring. If you apply a lot of credits per given time, you will lose many scores due to hard inquiries.
How do I grow credit scores?
You can grow your credit scores using a credit card or a loan. If you have never borrowed money, you can get a credit builder loan or a secured credit card to start building your credit scores.
To grow your credit scores, you need to have a particular discipline when using the card. The following are ways to increase your credit scores.
i. Pay your debts on time
If you apply for a loan or credit score, you must pay your loans on time. If you delay paying your debt, then the credit union reports negatively to the credit bureaus. That means your credit scores will go down. The vice versa is true.
ii. Maintain a low utilization ratio
It is not advisable to use too much of your credit limit. A credit limit is a maximum amount you can borrow with your credit card. Experts recommend spending at most 30% of your credit limit. That way, you will show that you are a responsible borrower.
iii. Become an authorized user
You can request a friend or relative to allow you to use their credit cards. If you become an authorized user, it means that you will fall in the same category as the actual owner of the credit card. That way, you will boost your scores fast.
vi. Mix credits
Credit mix refers to taking different loans at the same period. You can take a credit card, a mortgage loan, an auto loan, a personal loan, and so on and service them simultaneously. You have to pay them as expected, or else they may turn out to be disastrous to your overall scoring.
Can a secured credit card increase scores fast?
A secured credit card helps grow your credit scores, especially if you do not have any credit history. You may ask yourself a question like, how long does it take to build credit with a secured credit card? Well, there is no hurry when you are using a credit card to build your credit history. In most cases, a secured credit card can make a significant impact after six months.
Can I get a credit card without credit scores?
You can have a credit card without credit scores. Credit card issuers provide secured credit cards that require you to pay a deposit amount to act as security for the line of credit.
Secured credit cards come with low-interest rates so that you do not have to pay large amounts of money as interest. If you pay your debt well, then you can grow your scores excellently. You can thus get an unsecured credit card once your scores meet the suitable threshold. The deposit then becomes available for use in your account.
Which credit scores should I have to get low-interest credit cards?
If you want credit cards with low-interest rates, then you must have good-excellent credit scores. Credit scores range from 300-850. If you have credit scores of 700 and above, you can have loans with low-interest rates. But how much can I borrow with a 700 credit score?
A credit score of 700 can give you a credit limit of around $4,200 on average. Also, such credit scores can give you a mortgage loan, a personal loan, or any other loan with low rates, thus saving several dollars that you could have paid if you had low credit scores.
Hhow to Raise your Credit Score 200 points in 30 days
There are various ways you can use to increase your credit scores. However, you may need to increase your credit scores within a short time. If you want to grow your credit scores quickly, you have to do the following things.
1) Get several credit accounts
Getting several credit accounts assists you in having various companies report about your credit card usage. Therefore, your scores are bound to increase rapidly within a short period. However, you must pay your debts on time to facilitate good reporting.
Otherwise, the many credit cards can destroy your overall scoring. In short, having many credit card accounts diversifies your credit mix and also broadens your payment history.
2) Get a credit builder loan
Credit builder loans allow you to grow your credit scores within a short time. Various financial companies give credit builder loans in the country, and you can get the one with the most reasonable rates. A credit builder loan works like a secured credit card.
You have to deposit an amount before getting the loan. When you repay the loan together with interest, the loan issuer then avails the money in your account for other kinds of transactions. That way, you can increase your scores to greater heights.
3) Pay down credit cards with higher balances
Large debts are likely going to pull you down severely. Therefore, you are supposed to pay off the credit cards with large debts and then proceed to those with lower debts. Above all, you should maintain a low credit utilization ratio to ensure that you have low debts to pay. Low credit utilization, as I said earlier, shows that you are responsible and positively impacts your overall credit scores.
4) Keep your accounts active
Never make the mistake of closing your credit card accounts, as you will have interfered with your credit history. Even if you pay your debts in full, you should keep your accounts as they will be used as a reference for your credit scores.
5) Dispute wrong information in your credit report
Sometimes a wrong credit report can harm your credit report badly. Therefore, if you find that details in your credit report do not conform to your authentic details, you should file a dispute with the relevant credit bureau. When such errors that might have resulted in poor credit scores are removed, your scores shoot up.
6) Involve a credit repair company
A credit repair company will make a follow-up with the credit bureaus to ensure that your scores are rectified in the best way possible. Credit repair companies charge some fees to give you the necessary services. Various companies can help you in the repair process. They include; Credit Saint, Lexington Law, CreditRepair.com, and Sky Blue Credit, among others.
Credit scores indicate your creditworthiness. In short, they show your potential to pay loans and lines of credit. Financial companies usually report your credit card usage to credit bureaus, who then use various pieces of information to calculate your credit scores. You can raise your credit scores if you utilize your credit cards properly. It is advisable to always check your credit scores to dispute where necessary.