Do you know your credit score?
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.
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.
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.