Do you understand your credit score?
I never paid much attention to my credit score. I’m sure someone checked it when I rented my first apartment and again when I bought my first home, but I couldn’t have told you what it was.
Then I started using a budgeting service that updated my credit score for me within the app. It was like getting a grade on a test, but the test was adulthood – or at least how well I manage my money. And I always tried to be a star student in school! I started checking my credit score every time it updated.
First, the basics. Credit scores range from 300 to 850, and a score of 700 is considered good, while 750 or higher is excellent. These numbers make a difference not only in your rate for car loans, home loans and credit cards, but also impact everything from car insurance rates to whether you have to pay a utility deposit. Future employers may even check your credit when deciding whether to offer a job.
If you’re like I was and have only a vague idea of how your credit score is calculated, here are four things to do to end up with an excellent score:
Pay your bills on time
This seems really simple, yet it’s the one most people mess up. TTCU’s Chief Sales and Operations Officer Chuck Chastain said the most common unpaid bill sent to collections is medical co-pays. It’s usually small and easy to miss or ignore. Paying bills on time can help keep unwanted collection charges from showing up on your report.
Use your credit wisely
This is one I didn’t understand at all until I started tracking my score! I thought if I kept my debt total down, I was doing well. But the real key is to have more credit than you’re using. So, you’re better off to have three cards with small balances than one card that’s nearly maxed out.
Another surprise was that home loans aren’t counted as part of this equation, but home equity lines of credit is. So pay attention to how much of your available credit you’re using, and try to keep it below the magic percentage of one third.
Keep your old accounts
I struggle here. I have my main credit card that I’ve had since college, but every time a store clerk asks me if I’d like to save 20 percent by signing up for a credit card, I want to say yes. Of course I want to save money! Don’t do that. You end up with too many cards to keep track of, so then you cancel some of them, and it pulls down the average age of your credit. I’ve had to learn to say no.
Limit credit inquiries
If you’re applying for a bunch of new accounts in a short amount of time, it can be a red flag. Potential lenders may think you’re having money trouble and think twice about lending you any more money. Chastain says he doesn’t like to see more than one new account every six months. If you do need to open multiple new accounts, he says, you’re best off to open them in the same month so they hit your credit report at the same time.
If you’re ready to start tracking your own score, TTCU has launched a new feature to help! You can sign up at ttcu.com. Now I can see my credit score every time I log in to my online banking.
My numbers have never been easier to track!