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Monitor your credit report and credit rating to keep your finances on track
When lenders consider you for a loan, your credit score and credit report say it all. These two critical items are the ticket to obtaining credit or, on the flip side, what will stop you from getting credit or a good interest rate.
Kathryn Greiner of the U-M Credit Union, explains that there are five key components to your credit score:
- Your payment history
- How much you owe
- The length of credit history
- Your credit mix and
- The types of new credit you've obtained
“Do not use credit cards to finance an unaffordable lifestyle,” Greiner stresses. She recommends monitoring your credit by staggering your review of each of the three credit bureaus so you are checking your credit every four months.
5key.pdfWhat does a good credit mean for your future and how much you will pay for credit? Those with exceptional FICO/credit scores (720-850) will get the best interest rates, followed by those with scores 660-719, who usually get decent credit offers. If your score is 620 and lower, not only are you considered higher risk, but lenders will make offers of credit with much higher interest rates that can costs hundreds or thousands of dollars more over the life of a loan.
Lenders and those extending credit look at your total debt as a percentage of all of your available credit -- sometimes called the debt-to-credit ratio or "credit utilization ratio." If you have too much debt, you may be considered a higher risk for lending, she added. Responsible use of a single loan can get you the experience and credit history that you need. But if you want a top credit score, a mix of revolving and installment loans will help boost your score.
The websites creditkarma.com and credit.com allow you to get your credit score for free and view your individual credit situation and what is impacting it. You can chart your score history monthly and simulate the impact of a new loan or credit card. While other websites provide this service for a fee, Credit Karma and Credit.com do not charge.
Your credit score and credit reports (upon which your score is based) matter to your financial health. They affect your mortgage rates, credit card approvals, apartment requests and even on job applications. Reviewing your reports helps you to see any irregularities and correct anything you see that might be incorrect.
Each year, federal law qualifies everyone to get free copies of their credit reports from three main credit reporting bureaus: Experian, TransUnion and Equifax by visiting the website AnnualCreditReport.com. This is the correct website to visit: Don't be fooled by imitators! Reviewing your credit reports each year will allow you to view/download your reports, review them and make any needed corrections before applying for credit.
Greiner suggests that you not only “right the wrongs” on your credit report and with creditors, but improve your behavior and make a plan for improvement. She suggests using a free, online tool called powerpay.org, which allows you to generate a pay-back plan for a list of credit cards.
When looking at credit history, the more time you have under your belt, the better. Without six months of credit history, you won't have a credit score at all. Too many inquiries for new credit in a short period of time can hurt. But adding new credit to an old, troubled account may help your score.
Things to do today: Retrieve your free credit report from at least one of the three credit reporting bureaus at annualcreditreport.com. Retrieve an estimated credit score by creating a free account on creditkarma.com or credit.com.
Take these 7 Steps to Healthier Credit:
- Always pay your bills on time.
- Keep bills current for 12 consecutive months.
- Keep balances below 50% of the credit limit.
- Apply for new accounts only as needed.
- Make sure information on credit report is correct.
- Monitor co-signed and joint accounts.
- Be ready to explain what caused the credit problem, and what you’ve done to make things better.
Source: U-M Credit Union
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