Credit scores help lenders evaluate if they want to do business with you. FICO® Scores, which range from a low of 300 to a high of 850, are the most widely-used type of credit scores. However, other scoring models may also use the 300 to 850 scoring range. While 300 is the lowest credit score, the reality is that almost nobody has a score that low. For the most part, a score below 580 is considered " bad credit." The average FICO Score in the U.S. is 704.
I Have a Low Credit Score. Why Does it Matter?
If you have a very low credit score, you may find it difficult to qualify for credit cards and loans, or you may be required to pay a higher annual percentage rate (APR), or additional fees.
When you apply for a loan or credit card, lenders want to know if you will be a responsible borrower who stays on top of payments. Credit scores are an important way businesses can get a sense of how good (or bad) you are at repaying your debts.
How Can I Improve My Credit Scores?
You are never stuck with a bad credit score. Work on your financial habits and you can improve your credit scores over time.
Paying your bills on time, even if you manage to pay just the minimum amount due, accounts for 35% of your FICO® Score. Set up automated bill pay to avoid late payments.
Your credit utilization ratio is another important credit scoring factor to be aware of. This takes into account how much of your total available credit you are using on a monthly basis. Your credit utilization ratio accounts for 30% of your FICO® Score. Focus on paying down your balances will help to lower your utilization rate.
You might also want to consider a credit-builder loan.
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