Bad Credit Scores – Why Your Focus Should Be On Raising Your Credit Score
Common credit card annual percentage rates (APR) in the US range from 7% to 36%. The lower your credit score, the higher the interest rates you have to pay. The same is true with car loans and mortgages. Lenders impose higher interest rates to offset the higher risks they take in lending to borrowers with bad credit scores. You stand to lose thousands of dollars throughout the duration of a loan with high interest rates. This situation is doubly punitive to consumers who are struggling to keep their finances afloat due to dire economic conditions.
If you find yourself in this type of circumstances, you need to focus your efforts on raising your credit score. A credit score is a 3-digit number ranging from 300 to 850 that serve as a measure of your credit worthiness. It is based on information reported by your creditors and collectors to the three major credit bureaus: Equifax, Experian, and TransUnion.
You can ask for free copies of your credit reports from the three bureaus annually. These reports are also issued for free to people who have been denied loan applications due to their credit scores. You may request a consolidated report from the three bureaus’ common website, annualcreditreport.com. Getting hold of your credit reports would allow you to verify if all the information that have been reported on you are accurate. If ever you discover inaccuracies, you have the right to dispute the erroneous information by writing a letter to the credit bureaus. You need to clearly specify the inaccurate information, the reason why the information is wrong, and what action you want the credit bureau to take regarding the error. Enclose copies of relevant documents that substantiate your dispute. The credit bureaus are legally obligated to investigate your dispute within 30 days.
To raise your credit score, you need to demonstrate responsible borrower behavior and obtain positive reports from your creditors. 35% of your credit score is attributable to late bill payments. Another 30% comes from your credit utilization, that is, the total percentage of your credit limits that you use up. Authorized credit inquiries from prospective lenders are likewise reported as negative information and account for about 10% of your credit score. Keep these information in mind as you strive to build a positive credit reputation.
