An article published by the Wall Street Journal suggests that the average FICO credit score has increased to 700. In addition, fewer borrowers have poor FICO credit scores. FICO credit scoring models, which are used by the three credit reporting agencies (Experian, Equifax and TransUnion) were created by the Fair Isaac Corporation to assess whether borrowers are a credit risk. Borrowers with a credit score of 720 have an excellent rating. On the other hand, borrowers with scores below 620 are considered subpar.
The Wall Street Journal article has very important implications because FICO scoring models are used by a majority of lenders.
For example, if you have a poor credit score, then you may run into problems that include:
- Less favorable loan terms. With a poor credit score, you may only qualify for loans with higher interest rates. You will be forced to pay more in interest payments over the life of these loans.
- Less access to credit. In some cases, lenders may refuse to extend offers of credit. It may be more difficult for you to receive credit cards. You may also be unable to qualify for a car loan or mortgage. It could also be more difficult or impossible to lease an apartment.
- Rejection from jobs. Some employers will run your credit history before extending an offer of employment. Depending on the job responsibilities, these employers may refuse to hire you if you have a poor credit score.
How Can I Improve My Credit Score?
While this news may seem alarming, having a poor credit score is not the end of the world. There is no such thing as a permanent credit score.
In fact, there may be several methods you can use to increase your rating. However, showing stability is the most important factor for improving your credit score. For example, make all bill payments on time. In addition, your score may improve so long as you never carry credit card balances that are more than 30 percent of your limit.
You should also keep an eye on your credit score to ensure no new negative accounts are added. We have written previous blogs that explain in detail how you can check your credit score. Future blogs will explain other options for pulling this information.
If you are struggling with excessive debt, then our Kansas City bankruptcy lawyers can help you learn of possible options for debt relief.