WCF OFFICES CLOSED
All WCF Financial Bank offices will be closed on Thursday, June 19th in observance of Juneteenth. All business conducted after end-of-business on Wednesday, June 18th will be processed on Friday, June 20th when the Bank will resume its normal hours.
Last month I wrote an article discussing the impact of living with poor credit and some steps that can be taken to improve it. This month, I want to take a deeper dive by helping to better define what bad credit truly looks like and what can be done if you are in that position.
It may seem strange to assign a definition to bad credit. After all, everyone knows what that is, right? However, it may not be as simple as you think. Sure, there are the obvious signs, such as a bankruptcy, foreclosure, or repossession. However, there are other possibilities to consider. What about an unpaid medical expense from several years ago that you simply could not handle at the time? Perhaps you received a bill that you disputed or neglected, only for the other party to turn it over to a collection agency? What about a credit card from three years ago that claimed you missed a payment? How about disputed rent payments with a former landlord that led to a judgement filing?
The truth is, all these items can, and typically do, impact your credit history, and in today’s world, the quality of someone’s credit is almost always defined by a credit score. So, how is that score calculated and what does it truly mean?
All major credit reporting agencies, Equifax, Experian, and TransUnion, have slightly different formulas to determine your credit score. The common denominator is most of that score comes from the consistency in which you have paid bills over time. Other factors include the length of your credit history (longer is better), the utilization rate (the amount owed compared to the amount of your credit limit – less debt is better), the types of credit (credit card, student loan, automobile, home mortgage, etc.), and the amount of new credit that exists (fewer recent loans or inquiries from companies checking your credit is better).
What is a “good” credit score or a “bad” one? The answer can depend on which credit reporting agency you are referring to, as well as each lender’s underwriting standards. As a result, there is no “line in the sand” number that always separates good credit from bad. Obviously, the higher the score, the better, but as a very general guideline a score above 800 is excellent, 740-800 is very good, 660-740 is acceptable, 600-660 is fair, and scores below 600 are not ideal.
If your score is below 600, all is not lost. First, review last month’s blog to learn about ways to improve your score. But in the meantime, if you are in this position, can a lender ever provide credit? The answer may surprise you.
There are a few things that can be done to help you borrow money while your credit score is low. Some institutions offer a cash secured loan or credit card. It is a small step, but if you have access to even a modest amount of cash, you can offer that as collateral to offset the lender’s risk. Paying this back on time can help build trust with a lender while improving your credit score. Another approach is to utilize sources of nontraditional credit in proving your creditworthiness. Provide your lender with written documentation of successful utility, rent, insurance, and/or cell phone payments over a period of time to demonstrate consistency and responsibility. Finally, some lenders will consider extending you credit if you provide a co-borrower or co-signor with outstanding credit history, especially if that person has an established relationship with the same lender.
The best course of action is to build excellent credit from the very beginning of adulthood. However, that can be easier said than done. If you find yourself in the position of having a low credit score, be sure to seek the advice of a trusted, local lender, including those at WCF Financial Bank.
