Have you checked your credit report lately? If you have, good for you. If you haven’t, you should. Today. Right now. Just go to annualcreditreport.com. It’s free! And if you need help understanding your report, you can contact Accel, Catholic Federal's financial counseling partner. They’ll explain your report and how to fix it, for free.
It’s an important document. Your credit report contains a history of how you’ve handled the money you’ve borrowed, either through loans or credit cards. You’re also assigned a credit score - a number between 300-850 - that reflects how well you’ve handled the money you’ve borrowed. The more responsible you’ve been, the better your score.
There are five things that determine your score:
- Loan payment history – 35%
- Total amount owed – 30%
- Length of credit history – 15%
- New credit – 10%
- Types of credit used – 10%
If you’ve been late with your car payments or completely missed a few, maxed out several credit cards, or been stuffing your student loan bills under the couch, chances are your credit score isn’t anywhere close to 850.
But don’t despair. There is hope!
Having a low credit score isn’t the end of the world because there are steps you can take to raise it, including:
- Fix any errors that might be on your report. Read it over very carefully to make sure all the information is correct and all the accounts are yours.
- Bring your credit card and loan accounts current if you’ve missed or been late on payments.
- Stop applying for new credit sources (especially credit cards) until your score improves.
- Limit how often you use your credit cards and make sure your balances are never more than 30% of the total amount you can borrow. If your limit is $5,000, you shouldn’t borrow more than $1,500.
- Accept any offers to increase your credit limits. This raises your capacity to borrow and decreases your percentage of borrowed money.
- If you need to close any accounts, close the newer ones first rather than the older ones.
- Consider getting a low-interest consolidation loan if you have a lot of debt. This will give you just one payment and save you money every month.
- If you can, refinance your car or home loan at a lower interest rate and be sure to set up automatic payments so you never miss one. Use the money you’ll save to pay off any other debts you might have.
Your credit score is definitely not a number you should ignore. It can affect your life in a number of ways, from the loan rates you can qualify for to where you can live and whether or not you’ll get hired for a job. But you’ll have to be patient - improving your score takes time. When you learn to be more financially responsible and careful with your money, it will get better.