People who check their credit score regularly are more likely to understand how scoring works than those who don’t, according to a new survey released by the Consumer Federation of America and VantageScore. The survey also revealed that the number of people who have checked their credit score recently has increased.
Whether you’re intending to use your credit soon or simply looking for ways to improve it for the future, here are three things you should know about your credit score:
- Missed payments can lower your score.
Did you know that if you miss a payment on your credit card, car note, or student loans your credit score can be negatively affected? Payment history is one of the major components of your credit score. When you pay your bills on time each month, your credit score will gradually start to increase. If you miss payments or your bill is sent to a collections agency, your score will decrease.
If you frequently miss payments, your score could drop significantly, and it will take time to raise it again. If you can’t afford to pay your balance in full, at least pay the minimum amount on time.
2. Keeping a high credit card balance lowers your score.
Believe it or not, carrying a high credit card balance month to month can harm your credit score. Credit utilization is the percent of your credit limit that you use each month, and your credit utilization ratio is a key component of your credit score. A good rule of thumb is to keep your credit card balance under 30 percent of your overall credit card limit. For example, if you have two credit cards that each have a limit of $500, your total available credit is $1,000. In this instance, you will want to keep your balance below $300, or 30 percent, of your total limit.
A large credit card balance can also feel overwhelming to pay down. When you aim for a low balance and pay your bill in full each month, you get a fresh start each billing cycle.
3. Checking your credit report will not change your score.
Annual check-ups on your credit reports will make sure they are error-free and won’t impact your credit score. This can be done for free each year at www.annualcreditreport.com or by calling 800-322-8228.
Additionally, many financial institutions will let you check your credit score online for free. When you regularly monitor your score, you can see how your financial decisions are impacting your credit potential. Some tools may also show you how you measure up in the major credit scoring criteria, including payment history, utilization, and age of credit history.
Want to learn more about credit and your score? Take the short quiz offered by CFA and VantageScore online to test your knowledge at CreditScoreQuiz.org.
Darlene Aderoju works for America Saves, managed by the nonprofit Consumer Federation of America (CFA), which seeks to motivate, encourage, and support low- to moderate-income households to save money, reduce debt, and build wealth. Learn more at AmericaSaves.org.
Helpful Resources
Debt and Credit
Importance of Credit History
Blog Articles
- Free Credit Freezes
- 6 Ways to Jump-start Your Credit Score
- Building Credit and Keeping Yours Healthy
- Credit Scores and Credit Reports- Why Does It Matter?
- Don't know much about credit scores? Start by checking yours.
- Get the Scoop on Credit Scores
- Lowering Debt Can Raise Your Credit Score
- The 5 Pillars of Credit: What Goes Into Your Credit Score
- Things to Watch Out for When Looking at Your Credit Report
- Two Free Mobile Apps That Can Help You Better Manage Your Credit
- When Good Credit Is Romantic: Your Credit Score May Affect Your Love Life
Resources and Research
Energy Smart Credit Program for Lafayette homeowners Download Energy Smart Low Cost Credit for Home Improvements
Annual Credit Report (once-a-year), AnnualCreditReport.com or (877) 322-8228
Better Money Habits, Building credit and keeping yours healthy
Consumer Financial Protection Bureau (CFPB), Credit reports and scores
CreditScoreQuiz.org & CuestionarioparaelPuntajedeCredito.org, this is an informational tool developed by the Consumer Federation of America (CFA) and VantageScore Solutions.
Credit Reporting Bureaus
- Equifax (VantageScore)
- Experian
- TransUnion
FINRA Investor Education Foundation:
Money Under 30, How Credit Works: Understand The Credit History Reporting System
myFICO
The USAA Education Foundation:
- How Do They Calculate My Credit Score
- Why Does Paying On Time Matter?
- Why Should I Think About Credit?
About the Personal Investment Enterprise (PIE) Program:
The Personal Investment Enterprise (PIE) program is a local savings program provided through Community Action Programs of Boulder County and Foothills United Way. The program is designed for low-income families to enroll in financial literacy classes and save through a matched saving account at a rate of 4 to 1. The first step in applying to the program is to attend an orientation meeting with Nino Gallo at Community Action Programs at Boulder County. Nino may be reached at 303-441-3998 or at [email protected].
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