This guest post was contributed by Pyramid Credit Repair.
Credit, as related to personal finance, refers to someone’s ability to pay lenders back. Many years ago, bankers and individual lenders were forced to gauge a prospective borrower’s credit subjectively – they had no metrics or statistics to turn to in making such judgments.
In 1989, the Fair Isaac Corporation – the company since has changed its name to FICO – introduced the FICO score to the United States market. Here are the five factors used to determine someone’s FICO score:
Having a low credit score can lead to unwanted consequences
Most people think that credit scores aren’t ever used outside of determining how suitable prospective borrowers are. After all, it only makes sense that a metric designed specifically for determining how likely it is that someone will pay their debts back should only be used for lending purposes.
However, there are a variety of alternative uses for credit scores. Let’s take a look at a few of them so you can better understand the true value of FICO scores.
Did you know that landlords sometimes turn to credit scores and credit histories as part of evaluating applicants? This is especially true for expensive houses, apartments, and other living spaces. People with high credit scores are shown to be more reliable when it comes to paying their rent or mortgage on time than their low-credit-score counterparts.
Utility companies, the providers of water, natural gas, and electricity, often check people’s credit scores to determine what their security deposits should be. In most cases, employees aren’t asked to subjectively judge people based on their credit scores. Rather, they have complex software that essentially acts as actuarial risk estimators that tell utility companies how much money security deposits should be to best safeguard themselves against negative financial outcomes.
If you’re looking for a job in which you’ll be expected to handle cash or otherwise deal with money or valuable items, prospective employers are likely to turn to your credit score. Even if you have stellar credentials that would ordinarily put you at the front of the hiring line for such jobs, poor credit scores are a big no-no when it comes to evaluating potential employees in such capacities.
Lastly, you’ll almost certainly end up paying more money to your insurance provider in monthly premiums as a result of a low credit score. Research has found statistical links between low credit scores and risk-taking behavior, which is the reason why insurance companies turn to credit scores.
Repairing your credit score on your own – here are a few ways to do it
Look at your credit reports and dispute errors
Sometimes, credit bureaus mess up and put debts that don’t belong to you on your credit histories. If you notice any such mix-ups, reach out to credit bureaus and dispute such claims.
Knock off the largest credit balances first
Credit scores penalize consumers who have credit cards with utilization ratios of greater than one-third. If possible, start paying off the largest credit card balances you have to start seeing your score go up soon.
Don’t take out new debt
Although this might seem like a no-brainer, tons of people who are in debt take out new credit cards and loans just to pay their other creditors off. This strategy should never be used due to how risky it is. Furthermore, it costs money thanks to interest charges and late fees.
If you’re completely overwhelmed with debt and don’t know where to start, turning to professional, reputable, well-traveled companies like Pyramid Credit Repair is a good move to make – well, as long as you’re not digging yourself deeper into debt to pay such credit repair companies.