Good credit ratings are an essential part of financial well-being. A good credit rating helps you access more opportunities and better products, including loans, mortgages, and other financing services. Knowing your score can help you make the best financial decisions by giving lenders a snapshot of how responsible you’ve been with managing debt in the past. 

A higher number is ideal because it displays to potential creditors that one has demonstrated responsibility when borrowing money or paying bills on time over some time—usually, three years minimum, allowing them to qualify for lower interest rates, among many other benefits.

On the flip side, having low credit scores may limit someone's ability to obtain various types of funding, like auto loans or necessities such as student aid and making everyday purchases. This creates extra stress factors and headaches in worst-case scenarios should disaster arrive unexpectedly, but taking proactive steps ahead will dramatically reduce those odds, if not entirely.

What is a bad credit score?

A bad credit score can be a significant hindrance to financial progress. It is essential to understand what typically constitutes having a poor or ‘bad” credit score and how it affects one’s ability to obtain financing such as loans, mortgages, and lines of credit.

Generally speaking, lenders consider those with scores below 600 to be high risk due to their established pattern of late payments on past debts. Those individuals who have fallen into this category may be unable to access traditional methods for obtaining money from banks or other lending institutions until they take steps to improve their overall rating, often through debt consolidation services designed specifically for that purpose.

In some cases, the damage done is beyond repairable without help from an experienced professional credit repair agency or lawyer capable of providing tailored solutions, depending on one's circumstances. That assistance might come in many forms, including debt negotiation between parties, advising borrowers on restructuring existing obligations, and developing long-term repayment plans that allow people to refocus resources toward building positive accounts. It will also include disputing debts you disagree with, whether outdated or incorrect. This support system helps facilitate improved ratings and, more importantly, establishing sound fiscal habits from now on, thus giving potential creditors assurance that adequate measures were taken to manage finances properly.

What is the average credit score by age?

According to recent data from Experian, one of the three major credit reporting agencies in the United States, the average credit score in the US was 710 as of 2021. However, credit scores can vary widely by age, with different age groups having different credit profiles and histories.

Here is a breakdown of the average credit scores by age group based on Experian data from Q2 2021:

• - Age 18-24: 674

• - Age 25-34: 687

• - Age 35-44: 697

• - Age 45-54: 713

• - Age 55-64: 743

• - Age 65+: 749

As you can see, the average credit score tends to increase with age, peaking in the 55–64 and 65+ age groups. Several factors can influence a person's credit score, regardless of age. These factors include:

1. Payment history: This is the most important factor in determining your credit score and refers to whether you pay your bills on time.

2. Credit utilization: This is the percentage of your available credit that you're currently using. Generally, you want to keep this number below 30%.

3. Length of credit history: Refers to how long you've used credit. The longer your credit history, the better your score.

4. Types of credit: Lenders like to see that you can handle different types of credit, such as credit cards, car loans, and mortgages.

5. Recent hard credit inquiries: When you apply for new credit, it can temporarily lower your score.

Several other factors can influence your credit score, including the amount of debt you owe, any collections or public records on your credit report, and the age of your credit accounts.

Sources: - Experian, "State of Credit: 2021." https://www.experian.com/blogs/ask-experian/state-of-credit/

- FICO, "What's in my FICO Scores." https://www.myfico.com/credit-education/whats-in-your-credit-score

What are the different types of credit?

Your credit report may contain various types of credit, and the three major credit bureaus—Equifax, Experian, and TransUnion—classify each type with a unique code. Let's explore the different types of credit and how these bureaus categorize them.

1. Revolving credit: You can use this credit repeatedly, up to a certain credit limit. Credit cards are the most common type of revolving credit. Revolving credit is coded as "R" on your credit report.

2. Installment credit: This is credit that you borrow once and then repay over time, usually with fixed payments. Examples of installment credit include car loans, student loans, and personal loans. Installment credit is coded as "I" on your credit report.

3. Open credit: This credit, such as a charge card, must be paid in full each month. Open credit is coded as "O" on your credit report.

4. Secured credit: This is credit backed by collateral, such as a car loan or a secured credit card. The lender can seize the collateral if you fail to repay the debt. Secured credit is coded the same way as its type of credit (i.e., a secured credit card is coded "R" for revolving credit).

5. Unsecured credit: This is credit that is not backed by collateral, such as a credit card or a personal loan. Unsecured credit is coded the same way as its type of credit (i.e., a credit card is coded as "R" for revolving credit).

It's important to note that credit bureaus don't necessarily use the same coding system for all types of credit. For example, Experian may code a certain type of credit differently than Equifax or TransUnion. However, the general categories of credit (revolving, installment, open, secured, and unsecured) are consistent across all three bureaus.

How can a person ethically repair their credit and improve their credit scores? Consider tasks that could be seen as risky but are not illegal.

Here are some ethical steps that a person can take to repair their credit and improve their credit scores:

1. Check your credit report: Request a free credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) at least once a year. Review your report carefully for any errors or inaccuracies impacting your score.

2. Dispute errors: If you find errors on your credit report, dispute them with the credit bureau(s) in writing. Provide any supporting documentation you have to back up your claim. Credit bureaus are required by law to investigate disputed items within 30 days.

3. Pay bills on time: Payment history is the most important factor in your credit score. Pay all bills on time, including credit cards, loans, and utilities.

4. Reduce credit utilization: Keep your credit card balances low and pay off the debt immediately. Ideally, you should use no more than 30% of your available credit.

5. Don't close old accounts: The length of your credit history is another factor that impacts your credit score. Keep old credit accounts open, even if you're not using them. Closing accounts will reduce your available credit limits and increase your debt ratio, which can be harmful.

6. Diversify your credit mix: Having a mix of different types of credit (such as credit cards, car loans, and mortgages) can improve your credit score. However, don't take on new credit that you don't need to try to improve your score.

7. Seek credit counseling: If you're struggling with debt or credit issues, seek the help of a reputable credit counseling agency. They can provide advice and support to help you get back on track. Understand that hiring a credit counseling agency will not protect your credit.

It's important to note that some tasks could be seen as risky but are not illegal, such as:

• Negotiating with creditors to settle debts for less than what you owe: can be risky, as it can negatively impact your credit score, and you may still owe taxes on the forgiven amount.

• Applying for new credit: While opening new credit accounts can help improve your credit mix, too many inquiries or new accounts in a short period can hurt your credit score.

• Hiring a credit repair agency: This is often seen as a scam, but in reality, you are paying for a convenience service if you don’t want to be bothered with all the manual labor of drafting disputes, negotiating with collection agencies, and months of follow-up.

• Fighting zombie debt: Ancient debt that has been sold repeatedly to collection agencies and haunts you should be disputed and, if needed, negotiated. Most zombie debt has an expired statute of limitations, and paying it will renew the statute. Proceed with caution.

Overall, the best way to ethically repair your credit and improve your score is to make timely payments, keep credit utilization low, and maintain various types of credit. If you're struggling, seek the help of a reputable credit counselor or financial advisor.

What are the most derogatory items on a credit report?

The most derogatory items on a credit report are those that significantly negatively impact your credit score and can stay on your report for a very long time. Here are some of the most common derogatory items that can appear on a credit report:

1. Late payments: Payment history is the most important factor in determining your credit score. Late payments, especially those over 30 days late, can significantly lower your score and stay on your credit report for up to seven years.

2. Collections: If you fail to pay a debt, the creditor may turn the account over to a collection agency. This can result in a collection account appearing on your credit report, which can stay on your report for up to seven years.

3. Charge-offs: If a creditor determines you are unlikely to pay back a debt, they may charge off the account. A charge-off is a debt the creditor has written off as a loss, but a collection agency can still collect it. Charge-offs can stay on your credit report for up to seven years.

4. Bankruptcy: If you file for bankruptcy, it can stay on your credit report for up to ten years. This can have a significant negative impact on your credit score and make it difficult to obtain credit in the future.

5. Foreclosure: If you default on a mortgage loan, the lender may foreclose on your property. A foreclosure can stay on your credit report for up to seven years and significantly negatively impact your credit score.

6. Repossession: If you fail to make payments on a secured loan, such as a car loan, the lender may repossess the collateral. A repossession can stay on your credit report for up to seven years and significantly negatively impact your credit score.

It's important to note that derogatory items on a credit report can significantly negatively impact your credit score and make it difficult to obtain credit in the future. Repairing your credit and addressing any derogatory items as soon as possible is essential.

What is the credit rating scale?

The credit rating scale is a system lenders and credit bureaus use to assess an individual's creditworthiness based on their credit history. The scale typically ranges from 300 to 850, with a higher score indicating a lower risk of default.

Here is a breakdown of the credit rating scale:

• Excellent: A score of 800 or above is considered excellent and indicates a very low risk of default. Individuals with excellent credit are likely to receive the most favorable loan terms and interest rates.

• Very Good: A score between 740 and 799 is considered very good and indicates a low risk of default. Individuals with very good credit are also likely to receive favorable loan terms and interest rates.

• Good: A score between 670 and 739 is considered good and indicates an average risk of default. Individuals with good credit may still qualify for favorable loan terms and interest rates.

• Fair: A score between 580 and 669 is considered fair and indicates a higher risk of default. Individuals with fair credit may have difficulty obtaining credit or may be required to pay higher interest rates.

• Poor: A score between 300 and 579 is considered poor and indicates a very high risk of default. Individuals with poor credit may have difficulty obtaining credit and may be required to pay very high-interest rates or provide collateral.

It's important to note that different lenders may have different criteria for assessing creditworthiness and use different credit rating scales. Additionally, credit scores are based on various factors, including payment history, credit utilization, length of credit history, and types of credit used.