Extra Credit: Do you know your credit score?

People who check their credit score regularly are more likely to understand how scoring works than those who don’t. The impact can be significant. Understanding how credit scores work translates into knowing how a credit score can impact interest rates and ultimately how much it costs individuals to borrow money.

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Do you know your credit score?
By America Saves

Credit reports and credit scores
By Northern New Jersey Saves / United Way of Northern New Jersey

Free credit freezes are coming soon
By Federal Trade Commission

Do you know your credit score?

People who check their credit score regularly are more likely to understand how scoring works than those who don’t, according to a new survey released by the Consumer Federation of America and VantageScore. The survey also revealed that the number of people who have checked their credit score recently has increased.

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:

  1. 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.
  2. 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.
  3. 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.

 

Credit reports and credit scores

A credit report looks at some of your bill paying history, public record information, how often you have applied for credit, and how you have used credit. It shows how much credit you have, how much of your available credit you are using, whether you have made your payments on time, and whether debt collectors have reported that they are attempting to collect debt that you owe.

Credit scores are calculated using the information in your credit report, and many lenders use them to decide how much money they can lend you and how much interest to charge.

Why do credit reports and scores matter?

A good credit history can help you:

  • Get and keep a job.
  • Get and keep a security clearance for a job, including a military position.
  • Get an apartment.
  • Get insurance coverage.
  • Get lower deposits on utilities and better terms on cell phone purchase plans.
  • Get a credit card.
  • Get a better credit score.

If any of these things are important to you, improving your credit report can help you get them.  Scores are calculated based on the information in the report – so at least once a year, take the time to make sure the information in your report is accurate. You can get one free copy of your report every 12 months at www.annualcreditreport.com

What are credit scores and how are they calculated?

Credit scores are numbers created by mathematical formulas that use key pieces of your credit history to calculate your score at a moment in time - like a photograph.  FICO and VantageScore are two of the most commonly used credit scores. These scores typically range from 300 to 850. A FICO score above 700 is considered good by most businesses, and the scores considered the best are 750 and higher.

While there are certain similarities and many differences in the credit score formulas, here is information that FICO makes available to the public on what goes into its scores:

  • Payment History: 35%
  • Amounts owed: 30%
  • Length of credit history: 15%
  • New credit: 10%
  • Types of credit used: 10% 

Payment history tracks whether you are paying your bills on time and as agreed. Paying bills late, not paying bills at all, and having bills that go to collections will cause your scores to drop. The impact on a score from a single late or missed payment decreases over time. Paying your bills on time can help increase your score. Debts that go to collections and to judgment will cause it to fall.

To get and keep a good credit score:

  • Pay all your loans and bills on time. A good way to ensure this happens is to have money put aside in a savings account in case a bill is higher than expected one month or you had an emergency that used money you had planned to use for bill paying.  Saving a portion of your tax refund and having some funds automatically deposited from each paycheck into a savings account are easy ways to make sure you always have sufficient funds to make timely payments.
  • Make sure information in your credit report is correct. Check your credit report annually and take steps to correct mistakes. 
  • If you currently have access to credit, don’t use too much of the credit that is available to you.

For more information on credit scores and reports, visit: www.consumerfinance.gov/ask-cfpb/category-credit-reporting/

Lynn Weckworth works for United Way of Northern New Jersey, a nonprofit coordinator of Northern NJ Saves. Some of the content in this blog has been excerpted from the Consumer Financial Protection Bureau’s Your Money Your Goals

 

Free credit freezes are coming soon

By Lisa Weintraub Schifferle, Attorney, Federal Trade Commission (FTC), Division of Consumer & Business Education, as published on militaryconsumer.gov

Looking for stronger ways to protect your credit? Thanks to a new federal law, soon you can get free credit freezes and year-long fraud alerts. Here’s what to look forward to when the law takes effect on September 21: 

Free credit freezes

What is it? A credit freeze restricts access to your credit file, making it harder for identity thieves to open new accounts in your name. Usually, you get a PIN to use each time you want to freeze and unfreeze your account to apply for new credit.

What’s new? Currently, credit freezes may involve fees, based on state law. Starting this fall, it will be free to freeze and unfreeze your credit file throughout the country. 

Free child credit freezes

What is it? A child credit freeze allows you to freeze a child’s credit file until the child is old enough to use credit.

What’s new? Currently, some state laws allow you to freeze a child’s credit file. Starting September 21, no matter where you live, you’ll be able to get a free credit freeze for children under age 16.

Year-long fraud alerts

What is it? A fraud alert will tell any business that runs your credit that they should check with you before opening a new account.

What’s new? Currently, fraud alerts last 90 days. Starting this fall, an initial fraud alert will last for one year. It will still be free and identity theft victims can still get an extended fraud alert for seven years.

The new law has a long name – Economic Growth, Regulatory Relief, and Consumer Protection Act – but the outcome is simple. When the law takes effect in September, Equifax, Experian, and TransUnion must each set up a webpage for requesting fraud alerts and credit freezes. The FTC will also post links to those web pages on IdentityTheft.gov.

And if you’re in the military, there’s more. Within a year, credit reporting agencies must offer free electronic credit monitoring to all active duty military. 

If you want to stay tuned on this law and get other tips, sign up for the FTC's Consumer Information Updates.

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Social Media Content

Share the following messages with your followers. 

#SavingsTipTuesday

Keep your balance low. Maintaining low credit utilization is a sign of good credit management and shows lenders you are a good credit risk. http://bit.ly/2AyDAS8 v/ @AmericaSaves #SavingsTipTuesday 

Use your credit wisely! Avoid applying for multiple accounts in a short period of time. Taking on large amounts of debt in a short time is a sign of high credit risk. >> http://bit.ly/2fw2jgh v/ @AmericaSaves #SavingsTipTuesday 

A study by @FederalReserve says that credit can affect your relationship. Check out this info from @FINRAFoundation about how credit can affect your love life. http://bit.ly/2BkIXms v/ @AmericaSaves #SavingsTipTuesday 

#WednesdayWisdom

You can get out of debt and save money by managing your debt and credit responsibly. http://bit.ly/2lQia9y v/ @AmericaSaves #WednesdayWisdom 

Never miss a credit payment! According to @USAAEF, 35 percent of your FICO credit score is based on your payment history. >> https://bit.ly/2zVezAl @AmericaSaves #WednesdayWisdom 

If you want to start investing, check out these tips from The Office of Investor Education and Advocacy. https://bit.ly/2sVKJp6 v/ @MilitarySaves cc: @SEC_Investor_Ed #WednesdayWisdom 

#SavingsFactFriday

A high #credit score can make it easier to get an apartment, utilities, or even a job. http://bit.ly/2AwCKoJ v/ @AmericaSaves #SavingsFactFriday

Carrying a large balance on your credit cards from month to month can lower your credit score. v/ @AmericaSaves #SavingsFactFriday

Additional Posts 

Let @AmericaSaves help you stay committed to your savings goal! Take the pledge today: http://bit.ly/2dFhJf9

Want your free #credit report from the three main credit bureaus? All you have to do is ask! http://bit.ly/2AwBTo8 @AmericaSaves

Have a savings tip or story that others might benefit from? Share it w/ @AmericaSaves and you could win $25: http://bit.ly/2oiP4iv

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Helpful Resources

From America Saves

Debt and Credit
Importance of Credit History

Blog Articles

Resources and Research

Annual Credit Report (once-a-year), AnnualCreditReport.com or (877) 322-8228

Better Money Habits, Building credit and keeping yours healthy

Consumer Financial Protection Bureau (CFPB), Credit reports and scores

CreditScoreQuiz.org & CuestionarioparaelPuntajedeCredito.org, this is an informational tool developed by the Consumer Federation of America (CFA) and VantageScore Solutions.

Credit Reporting Bureaus

FINRA Investor Education Foundation:

Hands on Banking, Wells Fargo, All about credit

Money Under 30, How Credit Works: Understand The Credit History Reporting System

myFICO

The USAA Education Foundation:

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Tip of the Day

  • Save for #presents rather than relying on #credit http://ow.ly/pV4nN

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