Repairing your credit can feel like an uphill battle. Thankfully, fintech resources are making the lives of consumers easier. From exposing cracks in the credit system to assisting you in reaching the necessary financial benchmarks to make that big purchase you’ve been working toward, fintechs are revolutionizing the world of credit.
Despite their financial literacy in other areas, credit scoring leaves many consumers feeling confused. For too long, lenders and credit bureaus have played by their own rules. In recent years, fintechs have stepped up to create a more inclusive, personalized, and fair financial system.
Not only can these fintech resources help you repair your credit, but utilizing them will empower you to question everything you’ve heard about the scoring model. If you’re ready to take control of your financial health, a good place to start is understanding (to the best of your ability) what does and does not affect your credit score.
Why Fintechs Had to Step In
As a refresher, your credit score is a number that (according to lenders and credit bureaus) quantifies your creditworthiness or probability of default. It determines the likelihood that you’re approved for credit such as mortgages and credit cards. As it stands, the higher your credit score is, the more financially trustworthy banks and credit card companies consider you to be.
So, what exactly affects your credit score? Well, that’s where things get a little unclear. Credit lenders are the ones tracking your financial data. Rather, they rely on credit bureaus for consumer information. There are three major credit bureaus collecting and storing consumer information from various sources: Experian, Equifax, and TransUnion.
You can probably agree that it’s fair that lenders only want to grant credit to customers they believe will pay it back thus minimizing their risk, But, what’s not fair is that the major credit bureaus utilize secret, inherently biased algorithms and aren’t transparent about the factors they’re weighing to calculate your credit score.
Whether you were trying to repair your credit or build credit in the first place, it was (and to some degree continues to be) very difficult to do under such a non-transparent system. Fortunately, big data gurus and fintech startups stepped in. Their innovations are making credit scoring much more manageable for the average consumer.
Fintech Resources That Can Help Heal Your Credit
Although the precise algorithm for how credit bureaus calculate your credit score isn’t known, it does take into account payment history, outstanding debt, length of credit, and new credit. Unfortunately, there are no quick fixes for repairing your credit. However, with consistent effort and help from the right fintech resources, you can expect to see improvement in six months to a year.
The first roadblock you have to overcome in order to repair your credit is simply knowing what your credit score is. Credit Karma offers a handy credit score simulator. When you use this feature, you can see how different credit choices, such as applying for a credit card, might affect your score with different credit bureaus. Whether you’re running your own business or are just an average consumer, it’s important to stay on top of your credit score and keep good records of your finances.
One of the best ways to repair your credit is to make a plan to pay down existing debt. Fintech apps such as Debt Free help you pay off your credit cards right from your smartphone. Debt Free helps users repair their credit using the debt snowball strategy. In this method, you aggressively pay down the debt with the smallest balance first while making minimum payments on any others. Getting that quick-win will give you the momentum to go after the rest.
Another surefire way to improve your credit is to make payments on time. Nearly all credit card companies have their own mobile apps where you can set payment reminders, initiate autopay, and make secure mobile payments. To make sure you’re paying off your credit card completely each month, download Debitize. After making a purchase with a credit card, this fintech app immediately withdraws money from your bank account to cover it.
Whether you use an app like Debitize or make payments on your credit card’s mobile app, you should be sure to check the statements and transactions thoroughly. You never know when you’ll catch a billing error.
What You Can Expect from Fintechs in the Future
If bad credit (or no credit) has you worried you’ll never be able to fulfill your dream of owning a home, then you’ll want to pay special attention to how fintech startups like Lenddo and ZestFinance are shaking up the credit score market. With the goal of building scores for those individuals who’ve historically had trouble establishing credit, these fintechs are utilizing AI-based tools to evaluate non-traditional financial data when assessing potential borrowers. These fintechs are bringing together online lending and big data to expand the scope of typical credit bureau reporting.
Already, these fintech resources can do a lot to help you repair your credit and get control over your finances. They are making waves in the financial industry and putting pressure on companies that only rely on credit scores to determine creditworthiness. Moving forward, fintech will continue to help consumers heal their credit as well as provide more support for hard-working people on their journey toward achieving their financial goals.