Guess work is not the answer when determining if you have bad credit as your credit score can be assessed by potential employers, insurance companies, mortgage companies, and credit and loan providers. Play it safe and keep on abreast of your credit score by utilizing the tools which make it easy to do. The Fair Credit Reporting Act gives everyone the right to a copy of their credit files once a year without paying. You should obtain a free annual report from each of the three main credit bureaus, Equifax, Experian and TransUnion. Also you can obtain a free report once annually from www.annualcreditreport.com .
The Fair Isaacs Corporation collates your Fico score and this is the standard measure used across the board and recognized by all lenders. The score can range from 300 to 850. The average score is 725 with room for improvement, as preferential interest rates are most commonly reserved for those with a Fico score above 770. A Fico score above 620 should secure you a mortgage, but not at the best rates. A score of 700 and above is considered good, whilst a score below 620 will leave you to the mercies of sub prime lenders most often. Simply put if your score is so low, then you are considered high risk.
If you are considering some important reason to borrow in the future, such as taking out a home loan, it is imperative to know your score and seek to improve it if it falls below a rate which can assist you in obtaining the best interest rates. A difference in rates on something as long term as a mortgage can mean the difference in thousands of dollars paid to the mortgage company over the life of the mortgage.
You may well wonder how your score can be lower than you expected if you have made timely payments on your credit cards, but your score is assessed on a wide range of payments. It is never recorded if you pay your electricity bills on time, but if you default on one it will be reported to the credit bureaus.
You may have made a classic mistake of using too much of your available credit limit instead of staying close to the recommended use of no more than 30% of your credit limit. If you have been applying for credit to test if you have bad credit this will have had a negative impact on your score. If you are a totally unknown quantity and have no credit score then you cannot be assessed as a good risk until you demonstrate this through using credit.
If your score is bad then you should attempt to address it and improve it. Using credit is a good way of rebuilding your credit score, even if it becomes necessary to resort to sub prime lenders and secured credit cards. Just do your homework well to ensure you don’t end up paying exorbitant fees for the pleasure.
Sensible use of a secured credit card can improve your credit score by up to 100 points in one year. If you do have to opt for a ‘bad credit credit card’ then look to obtain one from a bank which has a good reputation. For instance a card obtained through Orchard House which is owned by HSBC, will carry more weight than one issued by the First Premier bank.
If you do use credit to rebuild a bad credit score then ensure to pay off the balance in full every month, never be late with your payments, and never use more than 30% of your available credit. See your credit card as a means to an end, and not as a reason to go spending. Whilst the negatives on your credit file will remain for 7 years, a current good record will go a long way to mitigating the past.