Your credit score is everything these days. Thanks to apps and websites such as Credit Karma, you can check your score and get notifications that might have otherwise gone unnoticed. Many lenders also now offer free credit monitoring.
Gone are the days when you could only check once per year for free. Now it’s as easy as logging into an app or website. Credit monitoring agencies (Equifax, Experian, TransUnion) are constantly alerted when you apply for any kind of loan or credit. They’re also alerted when you make payments on time, pay off a balance, make a larger than usual payment, or miss a payment. Pretty much everything you do is reported. That’s why it’s important to use your credit wisely.
💡Fun Facts:
| 1) Almost 200 million Americans have at least 1 credit card (US population = 331 million) |
| 2) The average card holder has ~3.84 cards |
| 3) As of 2022, there were 420+ million open credit accounts |
Inquiry Types
When you keep tabs on your own score it’s called a “soft inquiry” and does not affect your score. However, when any bank or lender runs an inquiry into your credit history it’s called a “hard inquiry” and this does lower your score, temporarily. A hard inquiry can stay on your credit report for up to two years. But don’t let that deter you from building your credit.
Building Your Credit
If you need to build your credit score, think of one thing you can start with and keep up with the payments. For example, you need to purchase a new car. Even if you’ve worked hard and saved for a car, consider taking out a car loan anyway (you might need a co-signer to get a decent interest rate). Use the money you’ve saved to make your on-time monthly payments. This will help to establish a good credit rating with the major credit monitoring agencies. Make at least one full year of payments, even if you’re tempted to pay it off. This will help establish credit history, which is a component of your total score.
Start Small
Even if you don’t need a new car, but still need to build good credit, you can get a credit card with a small credit limit for the sole purpose of building credit. Make one small purchase per month and pay it off as soon as it is due. You’ll probably get hit with a high interest rate until you establish good credit, but you can avoid high interest rates by paying on time. Another good tip is to make more than the minimum payment and, when possible, pay the entire balance. You can achieve this again by sticking to a low credit limit of less than $500.00 and making small purchases. Remember, this card is to help establish good credit, not to go on a shopping spree.
Continue Improving
Once you’ve established good standing with a credit card, and your score starts to rise, you’ll find you can get approved for other credit lines. A good way to keep improving your score is to apply for a card from a store that you frequently shop at anyway, or a gas station you use often. Use the card and set the money aside you would have used without the card. Then when the bill comes, use that money to pay for what you purchased. Sometimes, when you pay the balance, your score will jump because it will be reported that you paid the balance in full. Just keep in mind, credit is not free money. It takes discipline to use it. Don’t spend more than you can afford without the card. If you establish a rhythm you will find you can buy things ahead of pay day, for example. Just be sure to pay it when the bill comes, or at least keep your balances to a minimum because that’s a portion of what makes up your credit score as well.
Good Score
Any score over 700 is considered good credit and anything over 750 is considered excellent. A good score can get you a lower interest rate you get when you buy a home, finance a car, buy insurance, purchase a cell phone or open a new credit card. A prospective employer may also run a credit check (these are soft inquiries) to see whether or not you are responsible enough to hire. So, remember to check your score often, but don’t get over obsessed either. Everything is a balance!
OPINION
It is super important that you stay on top of your credit score. There are some free sites where you can check you score on a daily basis, without hurting your score. The most popular are creditkarma.com and credit.com. Most banks and credit cards also provide free credit score checks – just log into your account and look for that service. It’s also important that you check your full credit report at least once a year. By law, the 3 credit bureaus, Equifax, TransUnion and Experian allow you to get one free credit report a year. Just visit annualcreditreport.com to get your free reports.
