Why Is It Important To Have A Good Credit Score
There are several reasons why itâs important to have a good credit score. If youâre hoping, for example, to take out a mortgage to buy your own home one day, your credit score will need to be in good shape to get accepted and to get the best rates. Having a good credit score also means youâre much more likely to get the best rates when you take out other credit products. For example, youâre much more likely to get better credit card offers , low-APR loans, and even 0% finance agreements if your credit score is good. If your credit score isnât good, though, it doesnât necessarily mean you wonât get accepted for credit. However, lenders will view you as more of a risk, and as a result your interest rates will probably be higher, and any purchase or balance transfer offers you get will probably be shorter. Before you apply for anything, itâs always a good idea to check your eligibility and see your chances of being accepted.
Paying Your Bills On Time
While paying each of your bills on time may seem like the most obvious way to improve your credit score, its also the most important one. There is nothing that will harm your credit score as much as having a series of late payments on anything from car loans to mortgage loans. This is why it is extremely critical that you always make the minimum monthly payments by the determined date each month WITHOUT ANY EXCEPTIONS.
Even skipping just one mortgage payment is going to have a detrimental effect on your credit score. Sorry if that sounds cruel, but its the truth, and it should serve as your primary source of motivation for making your payment on time.
Heres an important fact to keep in the back of your mind: every time that you fail to make a monthly payment when you are required to do so, whether it be on a car or your home or anything else, it will be on your credit history and thus impact your credit score for up to seven years. Seven years. Think about that.
Now, one primary benefit to using a credit card here is that you can choose how much money you spend while using them, and then also determine how much you pay back each month, so long as that amount is equal or greater than the minimum payment you owe.
The reason why this is a benefit to you is because it allows you to budget your money accordingly and make the smartest financial decisions you can. In other words, you can avoid going into serious debt.
Improving Your Credit Score
Converting a Very Poor credit score to a Fair or a Good one is a gradual process. It can’t be done quickly . But you can start to see some steady score improvements within a few months if you begin immediately to develop habits that promote good credit scores. Here are some good starting points:
Pay your bills on time. Yes, you’ve heard it before. But there’s no better way to improve your credit score. If you have accounts that are past-due or in collections.
Avoid high credit utilization rates. Try to keep your utilization across all your accounts below about 30% to avoid lowering your score.
Among consumers with FICO® credit scores of 579, the average utilization rate is 89.9%.
Consider a debt-management plan. If you’re having trouble repaying your loans and credit cards, a debt-management plan could bring some relief. You work with a non-profit credit-counseling agency to work out a manageable repayment schedule. Entering into a DMP effectively closes all your credit card accounts. This can severely lower your credit scores, but your scores can rebound from it more quickly than they would from bankruptcy. If this sounds too extreme for you, you may still want to consulting a credit counselor to devise a game plan for improving your credit.
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Needing A Deposit For Utilities
Having poor credit can affect more than just your interactions with lenders and debt. It can affect other aspects of your life as well.
For example, if you move to a new apartment or home and want to sign up for utilities or internet service, the provider might ask you to provide a cash deposit. While paying utility bills in a timely manner wonât help your credit, missing payments and having bills sent to collections can damage your credit.
Utility companies, just like lenders, want to know that their customers will pay their bills. If your utility company thinks that youâre at risk of missing payments, it might make you offer a cash deposit to reduce its risks. That can make moving into a new home and connecting utilities even more expensive.
Difficulty Finding A Job
When you apply for a new job, your potential employer is highly likely to run a background check before extending an offer. Sometimes, the background check will include a credit check, especially if youâll be in a position where you have access to the companyâs financial accounts.
Employers want to know that the people they employ can be trusted to make financial decisions and trusted with the companyâs money. If you have poor credit or a lot of debt, an employer may think thereâs a risk that youâll make poor financial decisions or even use company funds for personal reasons. This can lead to you not getting jobs youâre qualified for.
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What Does A 579 Credit Score Mean
A credit score of 579 is higher than the lowest credit score of 300, but its still a long way off from the highest credit score of 850. In the main scoring models used by US credit bureaus, 579 is in either the lowest credit score range or the second-lowest range .
A score this low can make it hard to open new lines of credit and can damage your quality of life.
Heres how your score stacks up against the average credit score for different generations.
Can I Get A Home Loan With A Credit Score Of 579
Conventional mortgage lenders will most likely decline your mortgage loan application with a credit score of 579, as the minimum credit score is around 620.
However, for those interested in applying for an FHA loan, applicants are only required to have a minimum FICO score of 500 to qualify for a down payment of around 10%. Those with a credit score of 580 can qualify for a down payment as low as 3.5%.
See also:9 Best Mortgage Loans for Bad Credit
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Check Your Credit Reports To Understand Your Scores
Its a good idea to check your credit reports periodically to make sure there arent any errors or mistakes that could be affecting your scores. Its also important to check your reports so you can spot any potential signs of identity theft.
If you do spot any inaccuracies, you can dispute them directly with the credit bureaus. Credit Karma even lets you dispute errors on your TransUnion report directly with our Direct Dispute feature.
How To Improve Your 579 Credit Score
The bad news about your FICO® Score of 579 is that it’s well below the average credit score of 714. The good news is that there’s plenty of opportunity to increase your score.
91% of consumers have FICO® Scores higher than 579.
A smart way to begin building up a credit score is to obtain your FICO® Score. Along with the score itself, you’ll get a report that spells out the main events in your credit history that are lowering your score. Because that information is drawn directly from your credit history, it can pinpoint issues you can tackle to help raise your credit score.
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Use A Secured Credit Card Responsibly
The most reliable way to begin rebuilding bad credit is to place a down payment on a secured credit card. The deposit reduces the issuers risk, making it possible to get approved no matter how low your score might be. Then, simply keeping your account in good standing will result in positive information being added to your credit report month after month.
You could try a first, but if you dont get approved, go the secured-card route. Repeatedly getting rejected will result in multiple hard inquiries on your credit report and only make rebuilding harder.
Your Credit Score Can Fluctuate
You may see some short-term movement in your credit score. This happens as information is added or falls off your report, which can happen frequently. Our latestConsumer Pulse revealed one-third of consumers monitor their credit at least weekly. Its encouraging to see people take an active approach to managing their credit health. But when it comes to your credit score, theres no need to obsess over minor, day-to-day changes. Nor is it necessary to achieve a perfect score. Trying to stay within a certain credit range is a smart, less stressful way to monitor your score.
Also, your credit score may not be the only thing a lender looks at when making a lending decision. For example, if you apply for a mortgage, lenders may also verify your income, personal assets and employment history. Because lenders look at multiple factors, its important to strive for overall financial wellness in addition to any credit score goal you may have. Building an emergency savings account and creating a plan to pay down debt, if you have any, will help you be more financially secure and can reflect positively in your credit health.
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Can You Pay Off Your Balance Each Month
Never apply for a loan or credit if you dont first believe that you can afford to pay off the balance at the end of each month. This may sound obvious, but youd be surprised at how many people apply for credit or loans without asking themselves this question.
Ask yourself how you will use the credit card. Will you carry a balance, or can you indeed pay it off each month? Will you pay it off some months and not in others?
Roughly three fifths of all Americans who possess a credit card have a balance on that card. Despite this, you may want to pay off your balance at the end of each month so you can definitively avoid additional interest charges.
How Long Will It Take For Your Score Of 579 To Fully Recover
Any and all negative marks on your credit report will fall off in time. Most will remain on your credit report for 7 years . This means that in 710 years, none of the negative information weighing down your credit will remain, and your score of 579 score will have recovered .
In practice, you probably wont have to wait that long. If you have good luck removing negative marks with the quick fixes listed above, you may see a modest improvement in your score in just a few months. Even if you dont, your score will improve significantly within 12 years, since the older the negative marks on your credit report are, the less weight the scoring models will assign to them.
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How To Get A Free Credit Score
There are dozens of free credit score services available that offer your free FICO Score or VantageScore. Here are some popular free credit score resources.
Information about the Capital One Secured Mastercard has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.
*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.
For rates and fees of the Discover it® Secured Credit Card, click here.
For rates and fees of the Discover it® Balance Transfer, click here.
here to view the Cardholder Agreement for the OpenSky® Secured Visa® Credit Card.
Editorial Note:
What To Do If You Don’t Have A Credit Score
For FICO® Scores, you need:
- An account that’s at least six months old
- An account that has been active in the past six months
VantageScore can score your credit report if it has at least one active account, even if the account is only a month old.
If you aren’t scorable, you may need to open a new account or add new activity to your credit report to start building credit. Often this means starting with a or secured credit card, or becoming an .
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What A Fair Good Or Excellent Credit Score Means For You
The better your credit score, the more choices youll have when it comes to applying for a loan or credit card. Thats the bottom line.
If you have a fair credit score and are approved for a credit card, you may be offered a slightly higher interest rate. Your initial credit limit may also be on the lower side. But if you make your payments on time and demonstrate financial stability, you might be able to have your limit increased after 6-12 months.
If you have a good credit score, your chances of being approved for loans and credit cards increases. Youre also more likely to be offered a more competitive interest rate, as well as a more generous credit limit.
Finally, an excellent credit score makes borrowing money and getting credit cards much easier. Its also more likely to get you the best available interest rates and generous credit limits.
How Can I Get A Good Credit Score
To get a good credit score, you need to know first what your credit score is. It might already be good! You can find out what your credit score is by signing up for your Free Credit Report with TotallyMoney. It only takes a few moments, wonât harm your credit rating, and doesnât cost a penny. If you already know what your credit score is, and it could do with improving, you need to convince lenders that youâre a responsible borrower and that you can you can be relied upon to pay back what you owe. For more on how to get a good credit score, read our guide: â11 tips on how to improve your credit score.â
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What Can Hurt Your Credit Score
Having a good to excellent credit score is essential so that if you need to take a personal, car, or home loan out, you get the best competitive interest rates. Pay special attention when making your payments on loans and how often you take credit out to ensure that your credit score stays in good standing.
What Is A Bad Vantagescore Credit Score
VantageScore is another credit scoring model that pulls data from consumer credit reports in order to record a credit score. In the VantageScore model, a score between 300 and 660 is considered a bad credit score, with scores below 500 deemed very poor.
The VantageScore model breaks down its credit score ranges as follows:
- Very Poor: 300-499
The average VantageScore in 2021 was 698 well within Vantages good credit score range.
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Why Your Credit Score Changed
Your credit score can change for many reasons, and it’s not uncommon for scores to move up or down throughout the month as new information gets added to your credit reports.
You may be able to point to a specific event that leads to a score change. For example, a late payment or new collection account will likely lower your credit score. Conversely, paying down a high credit card balance and lowering your utilization rate may increase your score.
But some actions might have an impact on your credit scores that you didn’t expect. Paying off a loan, for example, might lead to a drop in your scores, even though it’s a positive action in terms of responsible money management. This could be because it was the only open installment account you had on your credit report or the only loan with a low balance. After paying off the loan, you may be left without a mix of open installment and revolving accounts, or with only high-balance loans.
Perhaps you decide to stop using your credit cards after paying off the balances. Avoiding debt is a good idea, but lack of activity in your accounts could lead to a lower score. You may want to use a card for a small monthly subscription and then pay off the balance in full each month to maintain your account’s activity and build its on-time payment history.
How A Bad Credit Score Can Hurt You
Denials for credit
A bad credit score can reduce your approval chances for credit cards and loans, making it difficult to accomplish many goals. If you want to get out of debt with a balance transfer card, such as the Discover it® Balance Transfer, you’ll need good or excellent credit. And if you want to earn rewards or receive luxury travel perks, it’ll be near impossible to find a card that accepts bad credit.
Less favorable loan terms
If you’re approved for credit, odds are you’ll receive less favorable terms, such as high interest rates or annual fees, compared to applicants with good credit. For example, one of CNBC Select’s best credit cards for bad credit, the OpenSky® Secured Visa® Credit Card, has a $35 annual fee though there are no annual fee options.
Limited credit card choices
Bad credit limits which credit cards you can qualify for the options you have will be primarily secured cards. While a secured card, such as the Discover it® Secured Credit Card or the Capital One Platinum Secured Credit Card, can help you rebuild credit, you’re required to make a security deposit â typically $200 â in order to receive an equivalent line of credit.
Take note that even if your credit score falls within the bad range, that is not a guarantee you’ll be approved for a credit card requiring bad credit. Card issuers look at more factors than just your credit score, including income and monthly housing payments.
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