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Understanding Your Credit Score

Do numbers and math freak you out? Attach financial pressures and responsibilities to those numbers and it’s enough to cause a mild anxiety attack. One important number in your financial life is your credit score—a three-digit number that’s used to assess your fiscal responsibility. Seem important? It is! Seem confusing? Don’t worry: We have simple tips for helping you navigate the world of credit scores.
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What is a credit score?
A credit score is a number ranging from 330 to 830 that’s used to judge your financial responsibility. The credit score numbers are grouped into ranges called credit risk levels. These levels are used to determine how large of a financial risk you are. “It’s primarily used by potential lenders to evaluate your credit worthiness,” says Neely D. Duncan, CPA and principal at the assurance services department of the certified public accounting firm Lane Gorman Trubitt. “If you’re trying to pay for a mortgage or a car, this is where that lender is going to go to see if you’re a viable candidate.” The higher your score, the less risky you are to businesses giving out loans, and the lower your interest payments will be. If you have a history of being responsible with your money, and staying on top of payments, you’re likely to pay off future loans as well.


How can you monitor your credit score?
Despite all the singing commercials you see on TV, you don’t need to trust a random Website to tell you your credit score. There are three main credit bureaus that monitor your financial records and input your spending behavior into your credit report. You can check your credit score from each of the three major credit rating companies (Equifax, TransUnion and Experian), for free each year, by using the site AnnualCreditReport.com—an easy and reliable way to keep tabs on your credit report online. “I recommend you look at it at least every year, and look at it from all three credit bureaus,” says Duncan. “It’s not something that you have to pay for, it just takes time to request it.”


How does your credit score affect you?
While the most obvious way your credit score affects you is in your financial life (like applying for loans or mortgages) your credit report can help or harm you in other ways as well, especially when job hunting. “When we have people who apply for a job straight out of college, we do a credit check on them,” says Duncan. “If they have a bad history of not being able to take care of their responsibilities, it can make us question why that is, and it may be the difference between them and another candidate.” The same holds true for older job applicants as well—pulling credit profiles is standard practice in the hiring process for most companies today.  While finances can be seen as just one aspect of life, responsibility is always important. If you’ve ever heard people say you should check someone’s credit score before you start dating them, now you know why.
Even if you’ve cleaned up your act, past financial irresponsibility can haunt you for a while. “The credit items that go onto your credit report stay on there for at least seven years,” says Duncan. “Seven years in your early 20s when you’re getting into your career can really impact you later on.” Credit score negligence can be dangerous too—if you don’t monitor your credit report, you could be missing the signs that someone has stolen your identity, or that incorrect information has been posted to your record.


How can you keep your credit score high?
Responsibility is key. Here are a few ways to make sure you stay on the path toward a stellar credit report and get a better credit score:


  • Start by doing basic things to establish your credit history, such as opening savings and checking accounts.
  • When you get your first apartment, make sure that your name is on the lease. That will help establish a record of reliable payments on your report. Utility companies also report payments, so having utilities in your name and paying the bills on time will help to establish a good credit record.
  • Get a credit card to use sparingly and pay off in full every month. “Don’t get a credit card to run it up, get a credit card to pay it off—that way, there’s no interest charged,” says Duncan.
  • If you have student loans, don’t ignore them. “People have this perception that if they file bankruptcy, their student loans go away, and that’s not true, they never go away, because they’re with the government,” says Duncan. While failure to re-pay your loans can negatively affect your credit score, positive repayment can help bolster it, so stay on top of payments.

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