Since the 1950s, Americans have been judged by their ability to accrue and pay off debts with a credit score. What started out as a way for mortgage lenders to judge good mortgage candidates has turned into a tool that every lender and landlord uses. Credit scores range from 300 to 850, with 850 being excellent. A score of 600 is in the fair range and can limit a lot of your credit opportunities.
A 600 credit score may not be the best, but that just means you have ample room for improvement. Read on below for more information about what a credit score is, what you can do to improve yours, and how O’Bryan Law Offices can help you. For more information about what we do, call us today at (502) 400-4020.
What Is a Credit Score?
A credit score, in simple terms, is a way for a lender to determine whether or not you’re a safe person to lend money to. The higher the score, the more likely you will pay back the debt. While FICO was the first widely used tool used by lenders, the more recent VantageScore has gained a lot of popularity.
In short, both of these credit scoring models use the same points of data, but they place different significance on different aspects. Since most lenders still use the FICO model, the rest of this article will reference FICO-based information.
How Are Credit Scores Calculated?
Since most lenders use the FICO model, we’ll talk about how FICO calculates your credit score. Five categories have an impact on your credit score, but these categories are not weighted equally. Payment history, for example, makes up the bulk of your score at 35%. Read on to find out which types impact your score most.
Payment History
This category is simple enough. Pay your bills on time, and you’ll be rewarded with a higher score. Unfortunately, it’s not always this simple. For many Americans, rent payments don’t appear on credit reports unless the landlord reports to one of the three credit bureaus. Late payments and missed payments have a significant impact on your credit score. On-time payments are the most important part of maintaining your credit score.
Credit Utilization
Coming in at a close second, credit utilization makes up 30% of your credit score. This is a fancy term for how much revolving credit you use. Revolving credit is credit you have access to–like credit cards. Experts say to use no more than 30% of your credit available. Ideally, you want to keep your utilization ratio under 10%. You can figure out your credit utilization by dividing your credit limit by your balance. Take, for example, someone who has three different credit cards with credit limits of $2,000, $5,0000, and $3,000. They should use no more than $3,000 (30% of $10,000) to ensure their credit score stays high.
Credit History
Credit history plays a role in your credit score as well (15%, to be exact). This is the age of your credit file, which changes for everyone. Older adults who have been building credit for decades will likely have a higher score than someone who just opened their first credit card.
New Credit
New credit applications often do a hard inquiry on your credit, which can have a negative impact on your score. Also, new credit checks account for 10% of your FICO score. Multiple new credit applications can be a major red flag to most lenders. Read our related blog for answers to the question, “How long do hard inquiries stay on your credit report?”
Types of Credit
The different types of credit you accumulate over the course of your life account for 10% of your credit score. This makes a ‘diverse portfolio’ and is often called a credit mix. Having a mixture of mortgages, credit cards, and auto loans can have a positive impact on your credit score. This can show lenders that you are responsible.
What Is a Good Credit Score?
If you have a credit score of 600, this puts you solidly in the ‘fair’ credit score range. Fair credit scores range from 580-669. A ‘good’ credit score falls in the range of 670-739. People with higher credit scores often have more options available to them, including a lower interest rate on a loan or credit card and better pre-qualified offers.
How Do I Get a Credit Report?
Many free online services offer a free look at your credit report. Each of the three credit bureaus offers one free in-depth credit report per year. At O’Bryan Law Offices, our debt counseling attorneys can help you request and understand your credit report. We can go over the report with you and help you understand how different credit decisions have impacted your score.
How Can I Improve My 600 Credit Score?
Building credit can be a difficult process. One bad decision or late payment can tank all the hard work you’ve done building it up.
A secured credit card may be an option for building your credit consistently. Most credit cards are unsecured, meaning you use the credit card and then pay the balance. With a secured card, you pay a security deposit to the credit card issuer (usually equal to the credit limit) and then you can access the credit.
The most important thing to remember about credit is that you can’t suddenly improve it overnight. Creating good credit habits is the best way to improve your credit and keep it high. Good credit habits include:
- Making payments on time
- Keeping credit utilization low
- Creating (and sticking to) a budget
- Avoid multiple new credit applications
Is Filing Bankruptcy Right for Me?
If you find yourself drowning in a mountain of debt and see no way out, bankruptcy may be right for you. Bankruptcy to build up your credit may sound counterintuitive, but bankruptcy has many benefits. Don’t fall for one of the many bankruptcy myths circulating online. Bankruptcy can be a way for you to eliminate credit card debt and take control of your finances.
Kentucky Bankruptcy Attorneys at O’Bryan Can Help
The Kentucky bankruptcy lawyers at O’Bryan Law Offices help clients with debt relief every day. If you’re struggling with a low score and a mountain of debt, let our experienced attorneys help. Our board-certified attorneys can help you with everything from credit counseling to restoring your credit after bankruptcy. Call us today at (502) 400-4020 or schedule an appointment online. At O’Bryan Law Offices, our attorneys are different. Let us help you explore your options for debt relief.
