Credit Scores: How to address four common credit problems

As long as you have money in the bank, you’re doing well, right? While a healthy savings account is always good, your credit score is also an important indicator of your overall financial health.

Your credit score is a number that represents your creditworthiness. Scores typically range from 300 to 850. Lenders use your credit score to evaluate your credit risk — generally, the higher your credit score, the lower your risk may be to the lender, and the more likely you are to get that new credit card or a great rate on a new car loan. If you’re an eligible customer, you can access your FICO^® Credit Score for free with Wells Fargo Online^®.¹

Maintaining a good credit score is important; a few small missteps can impact your score, creating issues with everything from your purchasing power to employers’ willingness to hire you. The good news is these missteps are avoidable. Learn how you can protect yourself and recover from these common credit issues.

The issue: You have no credit history

How did you end up here? Everyone starts with no credit. No credit can be just as limiting as a low credit score. Even trickier, it can be difficult to open a credit card if you have no credit history — lenders will have no way of knowing whether or not you are reliable and will pay your bill on time.

The solution: One solution is to have a trusted family member or friend co-sign for a car loan or a credit card in order to build a credit file. The bank will also look at the co-signer’s credit and can approve you to borrow with the understanding that if you default on your payments, the co-signer will be responsible for paying. Your best bet is to pay your entire balance for revolving credit accounts on time each billing cycle in order to help grow your credit score, while also protecting your co-signer’s credit score. Some lenders do not allow for joint applicants or co-signers, so keep that in mind.

Another option is to apply for a secured credit card — a card that requires you to put up a deposit as collateral for the card. Most credit cards are unsecured, meaning there is no asset guaranteeing the ability to pay off the loan. With a secured card, the credit card company reduces their risk by asking you to ‘secure’ the loan by submitting a deposit, which they can keep if you are unable to pay back your loan according to the terms. A secured card is a way to establish a credit history which, if positive, may help you become eligible for unsecured cards in the future.

The issue: You have a history of late payments

How did you end up here? A financial emergency can throw off any budget and cause a late credit payment. The severity of the late payment will affect how much your credit score suffers. For example, a 90-day late payment is much more damaging than a 30-day late payment.

The solution: It is possible to raise your credit score if you work on paying off all late payments as soon as possible, while continuing to pay the current amount due. If remembering to pay the bill is the issue, set up automatic online payments. However, don’t expect to see immediate results; according to Experian, a late payment can haunt your credit report for seven years.

The issue: You’re struggling to raise a low score

How did you end up here? Maybe you missed a payment or were seriously late, or you defaulted on a loan or lease. Your credit score is determined by five things, including payment history (35%²), amounts owed (30%), length of credit history (15%), how many types of credit in use (10%), account inquiries (10%).  Slacking on any of these things can impact your score.

The solution: Paying only the minimum monthly amount due and subsequently carrying over a large balance can cause your credit score to tumble, so be sure to spend only what you can afford to pay back.

Lenders like to know that, in the unfortunate event that you become unemployed, you’ll be able to pay your bill. To offset the spending on your card, use debit cards and cash for other purchases.

The issue: You spot an error on your credit report

How did you end up here? The good news here is that you’ve already adopted one of the best financial practices to ensure a high credit score by requesting your free credit report. However, spotting an error on your report can be unsettling.

The solution: Carefully review your free report. (One place to get a credit report is AnnualCreditReport.com). If you notice any incorrect or inconsistent information — such as reported late payments, personal information, or credit lines in your name that you didn’t open — contact the credit-reporting agency immediately.