Wherever you look, it seems as though there are loan offers galore. Not only that, but offers for credit card balance transfers, pre-approvals, promotions at every car dealership you can think of, and more. And that’s great. Getting approved for that loan is easy as can be—if you have good credit. But what if you don’t?
As of 2021, FICO reports that the average American credit score is sitting at 716. If your credit score is less than 600, you may feel like you have limited options when it comes to finances and credit. And while having poor credit isn’t an end-all when it comes to getting approved for a loan, it does mean that you’ll have to put in some work to improve your score and get back where you want to be.
So, how do you do that?
Building Up Your Credit Score
A credit score is composed of five main factors; the two biggest ones being payment history and credit utilization.
- Payment history is one of the most important factors, making up a full 35% of your credit score. Lenders want to know if you have a history of making your payments on time. If you’re having a difficult time making your payments, talk to someone about it, and see what your options might be.
- Credit utilization, referred to as simply “amount owed,” makes up 30% of your credit score. The credit utilization ratio is a way of determining this, and it’s used to determine about how much of the total credit extended to you that you’re using. Keeping credit card and other loan balances low, 30% or lower is recommended, relative to your limit. So, if you have a credit card with a maximum credit limit of $5,000, you should keep your outstanding charges to less than $1,500.
- Length of your credit history makes up another 15% of your credit score. The longer you’ve had credit available to you, the better.
- Number of new credit accounts equates for another 10% of your score. This includes new credit cards and recent inquiries into your credit history. Opening a new credit card decreases the average age of your credit history.
- Types of credit rounds out the remaining 10% of your score. Credit rating agencies like to see a balanced mix of credit from installment loans (car or personal loans), mortgage, credit cards and retail accounts.
The Next Step
No matter where your credit score is, if you want it to be better, Arbor Financial has experts who can help you do just that.
In addition to all the help that our experts can offer, we also have resources that you can take advantage of yourself. For instance, we offer a free Credit Score guide on our website, which explains what your credit score is and why it’s important, things that affect it, strategies for using credit cards appropriately, and more.
Plus, we also offer a free credit checkup to members, designed to help them find opportunities to save money, improve their credit score, and answer any and all questions they may have. It also features a complimentary credit report and FICO credit score, so you’ll know where you stand.
Improving rough credit can be daunting, but it doesn’t have to be impossible. With the experts from Arbor Financial at your side, we can help you make sure your credit is right where you want it.
