What I Learned From Being Denied For Credit Cards
When I was finally prepared to get a credit card on my own, none of the banks I applied to would give me a chance.
It went like this: I am unemployed, have no credit history, and have a couple of thousand dollars in college debt that I will have to start paying on in the next year or two.
Not exactly a winning pitch to convince someone to give you a line of credit! Two banks denied me, but one banker was kind and shared some info that has helped me raise my credit score over 100 points in the past five months.
First, I should stop trying to apply for credit cards that would get denied. His reasoning was simple: when you apply, they do a hard credit check which, in turn, can lower your credit score even more.
His second piece of advice was to get a secured credit card.
Get Late Payments Removed
Before disputing late payments you should contact your creditors and tell them you have a late payment on your credit report on your account and you believe its inaccurate. They may remove it as an act of goodwill for customers who have been with them for awhile.
I had a creditor remove a late payment from my credit report by calling and coming up with an excuse for why it was late. They removed it as an act of goodwill because I had been a customer for several years. If that doesnt work, you can start disputing it with the three major credit reporting companies.
I had four late payments with two different creditors at one point. I contacted the creditors and got one removed and disputed the other 3 with the Credit Bureaus. I was able to get another one removed, and my credit score jumped up by 84 points.
Understanding Your Fico Score
Your FICO score is based on the following:
- Payment history: 35%
- Account age/length of credit history: 15%
- New accounts/hard inquiries: 10%
The VantageScore, another consumer credit rating system, uses similar criteria, in a slightly different formula developed by three .
Clearly, the most important factors are establishing a history of on-time payments to all creditors and keeping debt low in relation to the amount of credit available to you .
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What Can Affect How Long It Takes
Your score is determined by the three credit bureaus , but its up to your lenders to contact them to report information about you. It can be as simple as your credit card company reporting that you made a monthly payment on time, increased your debt or decreased your balances. These are all positive influences on your score, but there may be a slight lag in timing due to the reporting process.
In addition to a potential delay in the telephone game between your credit issuer and the credit bureaus, certain financial events can linger on your credit history for years. Unfortunately, the more harmful events are often the ones that stick around the longest, so its best to know what actions will be the biggest burdens:
|Chapter 7 bankruptcy
This may seem ominous, but heres the good news: recency bias is alive and well in the credit scoring world. Even if theyre still present, the old items that appear on your report have less weight than your newer ones.
Check Your Credit Report
One of the important things that you must do to improve your credit score is check your credit report. Doing this will help you in identifying errors in your report. If you find mistakes in your report, you must get it rectified immediately. As the credit score is calculated based on the information mentioned in the credit report, it is very important for you to ensure that this report is free of errors.
These Two Things Hurt Your Credit Score The Most
One of the most useful features of a credit card is the convenience of paying as well as getting the security. Thanks to these two factors, we have been witnessing a massive growth of credit cards. However, even though credit cards come with the convenience of buy now pay later, you have to make sure to be particular the repayments. A bad repayment history takes a toll on your credit score in a big way. Letâs understand how is your credit score calculated:
â¢ 35% – Payment History
â¢ 15% – Age of Credit History
â¢ 10% – Type of Credit
â¢ 10% – Credit Inquiries
All the aforementioned factors affect your credit score but the payment history and credit utilisation hamper your credit score the most. Let us now understand how credit cards impact these two factors.
It must be noted that improving your credit score take time and patience and it cannot happen overnight. You have to follow certain discipline and work towards your financial goals to achieve the desired credit score.
Top 10 Things To Know About Your Credit Score
Once indebted, you are under close watch by financial institutions. No transaction made by you in the credit market will go unnoticed, and the same is recorded and maintained in your Credit Score. The scores may range anywhere from 300 â 900, 300 meaning you have an appalling score and 900 meaning that youâre every lenderâs dream customer.
Although simple to comprehend, there are a lot of myths revolving around it. Here are 10 facts regarding Credit Scores.
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How To Verify A Credit Repair Company
Unfortunately, fraud is common in the credit repair industry. Before signing up with a credit repair company, you should always do your homework.
Start by making a list of established companies. Check ratings with the Better Business Bureau and search for complaints in the Consumer Financial Protection Bureau database. After narrowing down your list, you can interview each company before making a decision.
According to the Federal Trade Commission, there are several signs of fraud to watch for:
- Asks for large amounts of money upfront
- Discourages you from contacting the credit reporting agencies yourself
- Says to dispute correct items on your
- Encourages false information on credit or loan applications
- Skips over your legal rights when explaining the company’s services
The Credit Repair Organizations Act says you have the right to cancel a contract within three days of signing for any reason. If you have trouble with a credit repair company, you can report the issue to your state attorney general or the Federal Trade Commission .
Sign Up For Experian Boost
If your low score is primarily the result of being new to the credit-seeking game and you are timely with your payments for utilities and your cell phone, ask the lender to pull a report from Experian, using its Experian Boost plan. This hybrid model draws on what the industry calls alternative credit data non-traditional payments that provide lenders useful insight into an applicants creditworthiness.
The way forward gets a little steeper from here, so its a good idea to know what youre up against.
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Find Out When Your Issuer Reports Payment History
Theres something called a credit utilization ratio. Its the amount of credit youve used compared to the amount of credit you have available. You have a ratio for your overall credit card use as well as for each credit card.
Its best to have a ratio overall and on individual cards of less than 30%. But heres an insider tip: To boost your score more quickly, keep your credit utilization ratio under 10%.
Heres an example of how the utilization ratio is calculated:
Lets say you have two credit cards. Card A has a $6,000 credit limit and a $2,500 balance. Card B has a $10,000 limit and you have a $1,000 balance on it.
This is your utilization ratio per card:
Card A = 42% , which is too high.
Card B = 10% , which is awesome.
This is your overall credit utilization ratio: 22% , which is very good.
But heres the problem: Even if you pay your balance off every month , if your payment is received after the reporting date, your reported balance could be high. And that negatively impacts your score because your ratio appears inflated.
So pay your bill just before the closing date. That way, your reported balance will be low or even zero. This lowers your utilization ratio and boosts your score.
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Is Using A Credit Repair Company Worth It
Before enrolling, make sure the credit repair company offers a money-back guarantee . With this type of guarantee, the company is incentivized to quickly resolve your issues. Also, make sure you understand how many items the company will dispute. This is particularly important if you have a lot of errors on your credit report that need to be resolved.
Lastly, if the issues on your credit report are complicated, make sure the credit repair company creates custom dispute letters and will provide you with individualized support. This is because one-on-one support might be needed to resolve complicated issues.
Pay Off An Installment Loan
You can also add a little bit more to your credit file by getting an installment loan and making on-time payments. Did you know that your student loans are installment loans? Additionally, you can get a personal loan and pay it off in installments.
Essentially, diversity of credit makes a significant positive difference to your score. And having a small personal loan, on top of a credit card, can be an effective way to build good credit from scratch.
That said, you probably dont want to take on debt you dont need simply to build your credit. But if you need an installment loan, make sure to borrow only as much as you can afford to pay back and to make on-time payments.
On-time payments will improve your credit score, whereas late or missed ones are a surefire way to destroy it. Also note that if you cant get an installment loan on your own, consider asking someone you trust to cosign.
Before you ask someone to cosign, make sure you are in a position to pay off the loan yourself. You dont want to stick a friend or relative with the consequences if you arent able to handle the debt.
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Does The Amount Or Number Of Collections Affect Your Score
No, the balance amount of collections wont affect your credit score. The number of collections on your report doesnt necessarily affect the score either. What matters is how recent the collections are, so you may not see improvements in your score if you managed to remove an older account instead of a more recent one. That said, its better to tackle the most recent ones first. The older the collections account, the lesser its weight in the eyes of the creditors.
The credit scoring models used by FICO and VantageScore agree that unpaid debt will hurt your credit score while paid debt collections dont. The latter may not improve your credit score, but it wont cause further damage either. Collection accounts, regardless of the amount or number, are viewed by lenders and creditors as red flags. But if you managed to pay off your collection debt, they may look at your report with less disfavor than one with unpaid collection accounts.
Use Your Secured Credit Card Sparingly At First
As you get used to using credit, youll want to use your card sparingly at first.
Dont rush in and begin charging items until you get a grasp on what you can truly pay back.
You dont want to end up with a revolving balance you cant afford to pay off every month, and you definitely dont want to pay interest on your purchases!
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Create Credit History By Choosing Different Forms Of Credit
If you havent borrowed funds in the past, you wont have a credit history, and as a result, your CIBIL score will be low. So, ensure that you borrow a healthy mix of credit, both secured and unsecured loans, of a long and short tenor to build a strong credit score. This will help you access low interest rates and higher loan amounts in the future whenever you choose to apply for a personal loan.
These are some habits that you can weave into your life to improve your credit score over time. However, it is essential to note that these steps will not lead to an immediate change in your score. After implementing them, it will take around 6 months to a year for your credit score to improve.
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What Is Considered A Good Credit Score
TransUnion CIBIL is one of the four credit bureaus generating reports related to credit scores in India. CIBIL scores range between 300 and 900. The closer the score is to 900, the better it is considered. While a score between 300 and 549 is deemed to be poor, anything from 550 to 700 is deemed to be fair. Scores belonging to either category can be improved.
Focus on understanding the factors that impact your and take conscious measures to improve it. If you keep at it, you can easily improve your CIBIL score over time. Take a look at 7 such tactics that will help you improve your CIBIL score.
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Check Your Credit Reportson A Regular Basis To Track Your Progress
No matter where you turn for your credit check-in your bank, or one of the major consumer credit bureaus its important to keep an eye on your credit. And if you find any mistakes or inaccuracies, we can help you file a dispute. If your dispute is approved by the credit bureaus, you may see the error corrected as soon as within 30 days, which can help raise your credit scores.
Theres Good Debt And Bad Debt
What makes debt good? Its debt you paid off as you agreed to do. The three big credit bureaus Equifax, Experian, and TransUnion base their scores on how well you handle your debt. If you have no debt at all, you can have problems. Last year, one Debt.com intern recounted her problems getting a credit card because she had no credit history. She was 19 and had always used cash.
Bad debt is much easier to spot: You run up huge credit card bills that you cant afford to pay off, and you end up getting harassed by debt collectors.
The lesson here: The longer you have a history of good debt, the better your credit score. This is a good reason not to close old accounts where youve had a solid repayment record.
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Keep Old Accounts Open And Deal With Delinquencies
The age-of-credit portion of your credit score looks at how long youve had your credit accounts. The older your average credit age, the more favorably you appear to lenders.
If you have old credit accounts that youre not using, dont close them. Though the credit history for those accounts would remain on your credit report, closing credit cards while you have a balance on other cards would lower your available credit and increase your credit utilization ratio. That could knock a few points off your score.
And if you have delinquent accounts, charge-offs, or collection accounts, take action to resolve them. For example, if you have an account with multiple late or missed payments, get caught up on what is past due, then work out a plan for making future payments on time. That wont erase the late payments but can improve your payment history going forward.
If you have charge-offs or collection accounts, decide whether it makes sense to either pay off those accounts in full or offer the creditor a settlement. Newer FICO and VantageScore credit-scoring models assign less negative impact to paid collection accounts. Paying off collections or charge-offs might offer a modest score boost. Remember, negative account information can remain on your credit history for up to seven yearsand bankruptcies for 10 years.
Pay Attention To Credit Utilization
Your credit utilization rate is the amount of revolving credit youre using divided by the amount of revolving credit you have available. It makes up 30% of your credit score and is often the most overlooked method of improving your score. For most people, revolving credit just means credit cards, but it includes personal and home equity lines of credit as well. A good credit utilization rate never exceeds 30%. So, if you have a credit limit of $5,000, you should never use more than $1,500.
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