Okay, that question was a bit on the facetious side. A number of my previous jobs required me to deal directly with credit. I can’t count the number of times I heard people say, “I have no clue what my credit score is”. Being that this was 5+ years ago I will cut them some slack. Nowadays you can check your credit for free with a number of sites. (weekly and monthly)
Where can I check my credit score for free?
There are a number of free websites that will give you your credit score, but I recommend CreditSesame.com. It is 100% free, no credit card needed, and it will give you coaching advice to improve your score. It also isn’t so IN YOUR FACE with offers like some other ‘free credit sites’. Click on the above link and click “Sign Up”.
Caleb, why are you lecturing me on checking my credit? I do this with the best of intentions 🙂 The free travel game relies heavily on your good credit to play!
Credit score plays into many facets of our lives. From buying a home, financing a car, signing up for a cell phone, getting your electricity turned on, and even employment. According the Society for Human Resource Management, 57% of employers may check your credit score before you start. The main reason they check your credit history is to look for judgments or liens (for liabilities) but your score could still be a factor, depending on the field of work.
Checking your score is the big first step in helping to improve your score. Once you know where you are at it will make it much easier to track your progress.
What things can help or hurt my score? There are many factors that play into your credit score calculation, but let’s touch on a few of the big players:
• Payment History
• Current Debt (balances owed, judgments, liens)
• Length of account history
• Number of credit inquiries
• Types of debt (revolving, installment, etc)
As you probably figured, payment history is one of the biggest factors in helping or hurting your credit score. A 30 day late payment will show on your credit report for up to 7 years, even if you close the account or pay it off. As the years pass that late payment will have less weight on your credit score. To help avoid late payments, I always recommend setting up auto-pay to pull straight from your bank account. Nothing is worse than forgetting to pay a bill and paying a late fee plus getting a ding on your credit.
The amount of debt you carry has a big weight on your score as well. If you carry a 30% or higher balance on your credit cards that will reduce your score as it looks like you are ‘needing’ to borrow money. If your last statement posted a $300 balance, and you have a $1,000 credit limit, that will report as a 30% utilization for that card. You want it to be 10% or less, if possible. One way to help is to find out what your statement closing date is, it usually the same day every month. Once you know that date you will want to pay your balance down 3-4 days before that date. When your statement closes it will report the small balance to the credit bureau and help boost your score. If you only have one or two credit cards this makes even more of an impact.
How am I charged interest? This is a bit off topic but important nonetheless. Interest is calculated and compounded on a daily basis starting from when you made the purchase. It is important that you pay off your credit card in full every month to avoid paying interest. After your statement closes the bank will usually give you a 21-30 grace period to pay off the balance in full with no penalty (aka, due date). Any amount that you don’t pay off, like when you only make a minimum payment, will be treated as “revolving debt” and can be charged interest back from the day the purchase was made. Each bank will have slightly different rules but there are two big reasons to pay your card credits off/down each month.
1. You won’t pay interest – If you have a 15% APR rate and make a 1,000 purchase, you will pay roughly $.41 in interest on just the first day you carry that balance. Then it begins to compound.
2. You will carry less debt, thus increasing your credit score – That is a no brainer
Should I close my credit cards that I don’t use? The short answer is, no. If you want to maintain/improve your score you should leave them open. This assuming you are paying the card off in full every month. There are a few reasons it is good to leave a credit card open: (assuming the card has no annual fee)
• Helps increase your overall available credit limit, thus lowering your utilization percentage
• Shows a history of an account, the longer the account age the better (if you keep it in good standing)
• Allows you to continue posting on-time payments, the biggest factor in your credit score