Before you can do anything to increase your 645 credit score, you need to identify what part of it needs to be improved, plain and simple. And in order to identify what needs to be improved, you should probably be aware of all the things that count and don’t count towards your score.
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What Counts Towards Your 645 Credit Score?
Table of Contents
In essence, your credit score tells you whether you have a responsible credit management and a history showing that you have been financially stable. So what factors contribute to showing that you are fiscally responsible and stable?
The first and most critical factor will be your overall payment history. This is simply whether you have paid all of your bills on time. There are also a variety of aspects of your payment history that your credit rating will include, including how late you were on your payments (1 week, 1 month, 2 months, 3 months, and so on), how many bills you paid and how many you did not, if any of your accounts have gone into collections (major red flag by the way) and if you have a history of foreclosures, bankruptcies, and debt settlements.
The second biggest factor that counts towards your credit score is the total amount of money that you owe. Again, there is a variety of aspects of this that goes into your 645 credit score. One such example is the amount of your allotted credit that you have used up. Here’s a piece of advice: the less you owe on the credit, the better your credit score will be.
That being said, it may also not be the wisest idea to show that you owe nothing on your credit. If lenders can see that you borrow a little money and pay it all in the allotted time, they will see that you have experience in borrowing money and paying it back responsibly. If they see that you don’t owe any on your credit whatsoever, they may perceive you as someone who is more inexperienced or who doesn’t take risks, and may subsequently be a little less willing to work with you.
Another aspect of your amounts owed is how much money you owe on each of your loans, including your credit cards, your car payments, and your mortgage payment. The best way to have a positive credit rating here is to have a variety of credits and loans and to manage each of them in a very responsible manner.
The third primary factor that counts toward your credit score is your credit history. This is simply a how long you have been using your credit and the ages of each of your credit accounts. There’s nothing wrong with having a long or a brief history here, so long as you manage your accounts responsibly and you actually pay your monthly payments when you are required to do so.
The fourth factor is going to be new credit. While your score will analyze all of the accounts that you have equally, the specific accounts that may affect your overall credit score more is your new credit accounts.
If you have opened multiple new credit accounts relatively recently, the score will assume that you are a larger credit risk, because people will tend to open a new credit account when they are getting into debt or have just lost a job and need more cash.
To put this into perspective, let’s say that you have applied for a mortgage. The bank lender is going to look at all of your existing debt obligations as part of how much you can afford to pay for the house each month.
If you have opened up multiple new credit card accounts, this will tell the lender that you are going to make multiple new purchases on these credit cards in the coming days or weeks (even if you actually aren’t, they will still assume that you are). This will then translate to them believing that you might not be able to afford to pay for your mortgage each month, and they may require a higher down payment or interest rate in order to offset it, or they might decide just not to work with you at all.
Finally, the fifth and final primary factor that your credit score will analyze is your type of credit. Examples of different types of credit includes credit cards, instalment loans, home mortgages, and car payments. Your credit score will include all the different credit accounts that you have, and the more you have and the more you handle responsibly, the higher your score will be. Conversely, if you have more types of credit but owe much on each of them, your credit score will be lower.
What Does Not Count Towards Your 645 Credit Score?
There are many things that people assume go into their 645 credit scores but that actually don’t. Examples include how much money you earn, your age, your marital status, your child support payments (if any), how much money you have donated to charity, where you work or live, or your employment history.
None of these things or anything like them do anything at all to your credit score, so instead, focus on the five primary factors that we outlined and discussed above.
Now that you know what counts towards your overall credit score and what does not, you should know exactly what you need to pinpoint in order to enhance your score. For example, maybe one reason your credit score is low is because you’ve opened several new accounts of credit.
Regardless, it’s important at this stage for you to positively identify what it exactly is that is lowering your credit rating. Once you have identified what that is, you can start to formulate a plan.
The Three Credit Reporting Agencies and Different Types of Credit Scores
Equifax, Experian, and TransUnion are three major credit reporting bureaus. Each credit agency provides you with a credit score, and these three scores combine to create both your 645 FICO Credit Score and your VantageScore. Your score will differ slightly among each agency for many reasons, including their unique scoring models and how often they access your financial data. Monitoring of all five of these credit scores on a regular basis is the best way to ensure that your credit score is an accurate reflection of your financial situation.
Formulating a Plan To Improve Your 645 Credit Rating
First aid foremost, you need to understand that it takes time for you to build up your credit score. Don’t expect it to be improved in the next week or the next month, even if you do everything necessary to improve it.
If you have any negative factors on your credit report right now, including a late payment, a bankruptcy, or an inquiry, you may want to pay the bills now and then wait. Remember that time is your ally, not your enemy. In the end, there is no quick fix for rebuilding a credit score. It takes time.
In formulating a plan to rebuild your credit rating, you need to understand how specific actions that you take will harm or hurt your credit score. For example, will working with your creditor to close an existing account in favor of rebuilding a new one with more favorable terms hurt or harm you?
Here are two factors for you to consider: a change to your credit report will affect your credit score (regardless of whether it’s in a positive or negative way), and your score is based entirely on the figures that are already in your report.
By closing your account(s), you are automatically lowering the number of revolving accounts that increase your credit score and also decrease the total amount of credit that is still available. This results in a higher balance-to-limit ratio, which will decrease your score. Therefore, closing your existing credit accounts may not be the best move for you to make, even though it’s a first instinct that many people have.
A major question that people have is how long it will take for them to improve their credit score. But here’s what these people are missing: there isn’t anything you can do to boost your actual score. Instead, you can do many things to rebuild your history of credit, and the healthier your credit history, the more elevated your credit score will be.
Therefore, you need to ask yourself a new question: how long will it take for me to rebuild my credit history? Honestly, there is no concrete answer to this, as everyone’s circumstances are different, but one universal fact here is that it will not take a short amount of time (unfortunately).
Keep in mind, any delinquencies on your credit report will remain there for seven years, and bankruptcies and other public record items will be on there for ten years. This means that even if you filed for bankruptcy nine years ago, it will still lower your credit score for the next year. Meanwhile, inquiries remain on your report for the next two years.
The point of this is that you need to treat your history of credit as something that you can slowly rebuild over the course of time, rather than immediately. By understanding this concept, you are more likely to avoid making mistakes and formulate a better plan.
Something that you must do to improve your credit history, however, is to pay the bills, and that’s something that we’re going to talk about next.
Paying Your Bills on Time
While paying each of your bills on time may seem like the most obvious way to improve your credit score, it’s also the most important one. There is nothing that will harm your credit score as much as having a series of late payments on anything from car loans to mortgage loans. This is why it is extremely critical that you always make the minimum monthly payments by the determined date each month… WITHOUT ANY EXCEPTIONS.
Even skipping just one mortgage payment is going to have a detrimental effect on your credit score. Sorry if that sounds cruel, but it’s the truth, and it should serve as your primary source of motivation for making your payment on time.
Here’s an important fact to keep in the back of your mind: every time that you fail to make a monthly payment when you are required to do so, whether it be on a car or your home or anything else, it will be on your credit history and thus impact your credit score for up to seven years. Seven years. Think about that.
Now, one primary benefit to using a credit card here is that you can choose how much money you spend while using them, and then also determine how much you pay back each month, so long as that amount is equal or greater than the minimum payment you owe.
The reason why this is a benefit to you is because it allows you to budget your money accordingly and make the smartest financial decisions you can. In other words, you can avoid going into serious debt.
Something that you must avoid at all costs is for your account to gin to collections. This means that you have failed to pay your minimum monthly payments for several months and your account has been taken over by a collection agency. This will also show up on your credit history for up to seven years.
Fortunately, it is very easy to pay your minimum monthly payments and avoid sending your account into collections. If you are unable to afford a full monthly payment, you will need to contact your creditor and negotiate with them (we’ll discuss this more in-depth in our final step).
The point for now is that by simply taking a responsible approach to this, you can greatly reduce your chances of going into debt and missing a required payment.
Ultimately, setting a budget is probably the best thing you can do to improve your credit history. Determine your total monthly expenses and your total monthly income, and divide it accordingly so you know you’re not going into debt. It’s alarming how many people don’t set a personal budget, but it’s easily the most effective strategy for paying each of your monthly expenses on time.
So, in short, setting a personal budget will be the most efficient strategy for raising and maintaining your credit score. It really is that simple.
Keeping Your Credit Card Balance Low
The very act of having credit cards will impact your credit rating. Regardless of whether it’s positive or negative, it has an impact.
But something else that you want to ensure you do is keep the balance on your credit card low. The balance on your credit cards can influence over one third of your total credit score. The higher your balance is, the lower your score will be.
What you want your credit card history to show is that you have been reducing your balance on an active basis by making your minimum monthly payments on time and using your credit cards responsibly.
A good rule to follow is for your balance on your credit card to be 35% of the total limit on that card. So if you have a limit of $1,000 on your card, you want your balance to be $350 at the very highest. This holds true regardless of whether you have one credit card or multiple cards. In the long run, this will not only prevent your overall credit score from dropping, but it could also cause it to increase.
Many people like to have multiple credit cards as a strategy to spread out the debt they owe on their credit cards as much as possible. However, this is not always the right strategy to pursue. What you will need to do is calculate the interest that you pay on each credit card and then compare the resulting rates. Based on this information, you should be able to figure out if it’s cheaper to consolidate each of your balances onto one card with a relatively low interest rate, or if you want it spread out across multiple cards, each with a higher interest rate. Only you know your personal situation, and it’s up to you to do the math here on your own.
The reason why this is so important is because most lenders these days want you to stay as far away from the limit as possible in order to have the best credit scores. In fact, most experts would recommend that you never use more than fifty percent of your total available credit. If you use any more than that, or if you max out your limit, your overall credit score will drop.
It’s understandable if you find this hard to do. If you use your card like most Americans, it will be difficult to keep yourself far away from the limit. This is especially true for people who travel and put their travel expenses on their airlines cards. It adds up after a while and, even if you are able to pay it off each month, it will still be sending a pretty large balance to the credit reporting company.
The solution here that probably comes to mind first is to simply not use your credit cards as much. On the other hand, credit cards are more secure than debit cards, and the records allow you to better keep track of your spending.
Another strategy that you can use is to make a payment each time you make a large purchase. For example, after you purchase airplane tickets, the next thing you could do is go right to the website of your bank and make a payment.
Shopping for the Best Rates on Loans and Credit Cards for a Credit Score under 645
If you are ever on the market for high-priced items, such as home appliances, it is very common for people to walk into the store and get offered a discount or an otherwise excellent financing deal.. .but only if they open up a credit card account with that store.
Why do stores offer these credit cards? The reason why is because there’s usually a high interest rate or multiple fees that go along with them. Those rates and fees can be found on the small fine print of the credit card deal, but of course, the store doesn’t tell you.
A golden rule of credit cards is that you should only apply for credit that is a necessity for your financial life. When applying for a credit card from a retail store, you’re probably only going to use it once, twice, or three times maximum. You could just as easily be using an existing credit card that you already have.
Here’s why this is so critical: applying for multiple credit cards within a few months of each other will be very harmful (or more appropriately, detrimental) to your overall credit score. Never apply for a credit card (or a loan, for that matter) that you don’t need.
Now, when you do decide to apply for credit cards and loans in general, there are a few factors that you will want to remember, including:
Can You Pay Off Your Balance Each Month
Never apply for a loan or credit if you don’t first believe that you can afford to pay off the balance at the end of each month. This may sound obvious, but you’d be surprised at how many people apply for credit or loans without asking themselves this question.
Ask yourself how you will use the credit card. Will you carry a balance, or can you indeed pay it off each month? Will you pay it off some months and not in others?
Roughly three fifths of all Americans who possess a credit card have a balance on that card. Despite this, you may want to pay off your balance at the end of each month so you can definitively avoid additional interest charges.
Know What Information You Need To Look At
You also need to know what information you should look at when looking at credit cards. When you are offered a credit card, you will be given a variety of information, such as the APR (annual percentage rate). Sometimes the credit card offer will offer a variety of rates, and you won’t know what rate you will get until after you have been approved. You would be foolish to assume that you will get the lowest rate possible.
Another piece of information to look at is the credit limit. Your potential creditor will tell you that your card is limited up to a certain point, but again, you may not qualified for the maximum limit. When you do max out a credit card that has a low credit limit, it can harm your credit score.
Some credit card companies will also have a penalty APR. Always find out what the penalty rate is before applying for a card, what causes you to have the penalty, and how long the penalty will last.
Finally, look at any fees that come with the credit card. Examples of fees include late payment fees, cash advance fees, annual fees, and transfer fees. Again, don’t apply for a credit card until after you have found out exactly what these rates are.
Shopping for Credit Cards with a 645 Credit Score
When shopping for credit cards, make sure you explore all of your options. In other words, don’t just sit down with one potential creditor and decide to accept their deal or not. Sit down with multiple potential creditors and compare and contrast them to find out what works best for you.
If you already have a credit card, but have been shopping for one that is cheaper, you can then go to your existing creditor and request them to either match or beat an offer from another credit card company. Tell them that you believe you are paying too much money in fees and interest, and ask them if they are willing to lower their rates and fees down to the other credit card company that you are thinking about switching to.
If they refuse, then you can switch accounts, but don’t close your existing account immediately. You still want to make the minimum payment on. it while you are waiting for your balance to transfer to your new account. You only want to close a credit account when your balance is at zero.
Recognize That Your Rates Can Increase
Currently, credit card companies cannot raise your credit rate for at least one year (12 months) after you have opened your account, unless any of the following circumstances apply:
- A six month introductory rate exists
- You are late paying your bill by sixty days
- You have a card with a variable rate that is tied to an index and that index increases
You need to recognize that your credit rates will increase in the future, at least after the initial twelve months, and you need to establish with your potential creditor exactly when your rates will increase, by how much, and if there is anything you can do to lower your rates.
Steering Clear of Bankruptcy
‘Bankruptcy’ is a highly feared word in the world of finances. It’s something that we all hope we will never have to endure; the mere thought or possibility of it is enough to make us quiver in fear.
Bankruptcy is definitely not something that should be underestimated. It will be one of the biggest blows not only to your finances, but to your state of mind and well-being as well. Plain and simple, a bankruptcy is something that you want to avoid at all costs. And as you may have guessed, a bankruptcy is not going to look good on your credit report (to say the least).
But while it is universally acknowledged that bankruptcy is something that you should try to avoid at all costs, there are still many mistaken beliefs that surround how to avoid it, too. A bankruptcy will immediately lead to a huge drop in your credit rating and will be visible on your report for over ten years at least. This means that if your credit score has already fallen thanks to late/missed payments or defaults, with a bankruptcy, things aren’t exactly going to look so sunny.
Many people mistakenly believe that bankruptcy offers them a chance to get out of their fiscal responsibilities. This IS simply not true. On the contrary, all you are doing is setting yourself up for many more difficulties in your financial life down the road. The reason for this is because getting any loans or credit down the road is going to be incredibly difficult with a bankruptcy listed on your credit report. In fact, many banks, car dealerships, and other lenders will automatically reject anyone who applies for a loan with a bankruptcy listed on their credit report. They simply aren’t willing to take the risk.
What if you are forced to file for bankruptcy? Is it still possible to rebuild your credit?
Yes, it still is. Even though your bankruptcy will be listed on your report for ten years, you can still slowly but steadily rebuild your credit by paying each of your bills when you need to. In this scenario, however, it’s vitally important that you repay each of those bills without exception.
There are more things that you will be able to do to help rebuild your credit following a bankruptcy as well. Bankruptcy will be a blow to your credit score, but not all is lost. Here are a few examples of what you need to do:
Negotiate Your Debts
One of the biggest things you can do is to negotiate your existing debts. What is called Chapter 7 Bankruptcy is pretty much the same thing as liquidation, meaning that all of your existing debt is wiped clean. While this may sound good at first, if you are unable to pay for all the debts in cash, it could mean that you have to relinquish your property and other assets. Fortunately, it is still possible for you to hold onto your money and then settle your debt instead.
In contrast to this debt consolidation is where lenders will repay your debts without losing any of your property or assets. This means that all of your debt would then consolidate into one loan with a single monthly payment at a relatively low interest rate.
Settling your debt is very similar to this, in that it means you have to negotiate a new deal with your creditors. If it’s looking like they will get their money back, lenders will then work with you to reduce your monthly payments. One example of what they may do is to waive your existing payments should you decide to make a larger monthly payment in the future.
Another example of what you can do in the event of a bankruptcy is to simply sell your property. In a Chapter 7 Bankruptcy, or liquidation, your property will be reviewed by a trustee. The trustee will then decide on what needs to be liquidated so that you can settle your claim. Hopefully, you’ll be able to avoid this by selling some of your belongings to avoid the bankruptcy instead.
Examples of belongings that you have that are probably worth a lot of money include antiques, a second vehicle, jewelry, or firearms. Even if you only get a relatively small amount of cash from selling these kinds of items, it will still be better than being forced to give up your property when filing for bankruptcy.
Borrowing money is something that many financial advisers and experts recommend avoiding because it puts you into more debt. Besides that, it may be very difficult to ask a friend or family member for money. Many personal relationships have been broken in the past over borrowing money.
What you need to do is form your budget and then see how much money you will need to raise in order to avoid bankruptcy. From this, you can then determine how much money you will need to ask to borrow.
Be sure that the person you ask to borrow money from is someone who you can completely trust, and that asking them for money will be a long term solution rather than just a short term one.
Renegotiate Your Mortgage
If you are in the process of paying off your home, something else you can do to avoid bankruptcy will be to simply renegotiate or restructure your mortgage. By negotiating a new payment plan for your mortgage to get a lower monthly payment or a lower interest rate, you will be able to save some money that you can then use to pay your debt. It will certainly be worth it if it means avoiding bankruptcy and all of the consequences that come with that.
There is also more than one way you can restructure your mortgage to avoid bankruptcy. The first thing you can do is to meet with your housing lender and see if you can simply negotiate your mortgage under an updated payment plan.
The second way will be to simply completely refinance the mortgage, which will mean you must apply for a lower interest rate that is stretched out over time. The money that you will save up front will be very helpful in allowing you to pay off other debts and avoid bankruptcy.
Finally, simply living frugally is a very effective but also underused tactic to avoid bankruptcy. Living frugally means that you simply cut back on expenses and eliminate the ones that are not necessary.
Granted, this means that you will have to make some sacrifices, such as purchasing fewer groceries, cancelling your cable bill, and not going out to eat as much.
Ultimately, the secret to learning how to live frugally is learning how to discriminate between what you want and what you need. Going to the mall repeatedly is a want, while paying your electricity bill is a need. You simply need to learn how you can reduce your debt to save money and which expenses you will be able to cut. The benefit to living frugally is that the money you save will add up.
These are the top suggestions for avoiding bankruptcy. If you try all of them and if they still don’t appear to be working, you Will need to consult with a financial adviser as soon as possible (if you’ve not already) to see what you can do to get back on track.
Fortunately, the above suggestions have worked for many people, so there’s little reason to think they won’t work for you as well. There is no overnight fix to avoiding bankruptcy, but there are major steps and new lifestyle changes you can take like we have seen.
Negotiating with Your Creditors
Despite what many people believe, your creditors are not your adversaries and they are not working against you. Therefore, you should not treat them as such. Instead, your creditors are working with you in an attempt for both of you to gain a profit.
If you fail to do things, such as pay your bills on time, it negatively impacts the ability of your creditor(s) to do business with you. While they should be understanding of any reasonable financial hardships that you
have undergone in the past few weeks or months, they can tell the difference between short term financial problems that were out of your control and blatant financial responsibilities on your part.
Ultimately, it’s your responsibility to communicate effectively with your creditor so that you can both benefit equally from your business agreement.
For an example, if you are forced (for financial reasons) to skip on a payment or to default on an entire loan the very first thing you need to do is to contact your creditor and talk about the Issue in detail with them. This action alone will tell them that what has happened is out of your control and that you are trying to correct the Issue in contrast to them believing that you are just behaving irresponsibly. In addition, this will also strengthen your business relationship.
The last thing you want is for your creditor to have to hand your debt over to a collection agency. This will lead to many new problems in the future, because agencies will do everything and anything in their power to recover money. Not to mention, it will also look bad on your credit report.
After telling your creditor about the financial hardships that you have undergone, they will be willing to assist you. After all, they’re in this for the same reason you are (to save and earn money). When you lose money and your credit rating goes down, they lose money too.
Examples of how your creditor may be willing to help you after you have discussed your problems with them include the following:
- Reducing your minimum monthly payment
- Reducing your monthly interest rate
- Waiving any fees you have
- Allowing you to perhaps skip one monthly payment (note, this will only happen in extremely unique circumstances, so don’t bet on it)
- Allowing you to close your account and open up a new one with more affordable payments
- Accepting a settlement that is less than the amount you actually owe
- Refinancing your overall loan
Ultimately, you need to treat your creditor as your business ally and not your enemy. By doing so, you’ll be able to communicate with one another better and subsequently they’ll be able to help you.