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Credit Scores

by Kevin McKinley - March 20th, 2016

Posted Under: economics & policy

We’re more than halfway through March, which means we’re more than halfway through our “Millennial Money Month”, devoting the entire month to financial topics that are (hopefully) of interest to young adults (feel free to read along even if you’re a little older than “young”). 

This week we’ll cover your credit information and scores, and how a few small mistakes early on can lead to big problems (and expenses) for years to come. 

What’s the score?

Your credit score is a number that quantifies all of your past and current borrowing, the amount of debt you owe (especially relative to your available credit), the timeliness and amount of your debt payments, and any recent attempts to obtain a loan or credit (whether or not you were successful).

Different credit bureaus can have different types of scores for different situations (such as getting a mortgage versus buying homeowner’s insurance). 

The most commonly-used metric is the “FICO” score, which ranges from 300 to 850. The average score is currently just below 700, an all-time high. 

Why scores matter

Of course your credit score can affect your ability to get a car loan, mortgage, or credit card. It will also determine what interest rate you will pay if and when you are able to borrow money, and how much you can borrow. 

But your credit history can also have an impact when getting a new cell phone and data plan, or trying to rent an apartment. A low score can also increase the cost of your auto or homeowner’s insurance. 

Worst of all, a negative credit score or record can keep you from getting hired, as some employers consider an applicant’s credit use and history when choosing a candidate.

Last but certainly not least, you may find that the love of your life would prefer to spend his or her life with someone who is a little better at managing bills, debt, and credit cards. 

Even when you realize that your poor credit score is hurting you, it can take months of hard work to improve your profile and score. By then that dream job opportunity or prime apartment (or ideal life partner) might be long gone.                                                                                                                                                                                                                                                       

Where to find yours

Many services and websites claim to offer a free credit score or report. But the offer is often a teaser to get you to sign up for expensive and unnecessary credit monitoring services. 

To check your credit score you can contact each of the three major credit bureaus directly (Experian, Equifax, and Transunion). 

You may also go to MyFico (www.myfico.com), and, for about twenty bucks per report, get one from each of the three primary bureaus, along with some tools you can use to try to improve your score.

Some banks and credit unions offer a free credit score report to their customers, so check to see if your institution can help. 

You can also find an estimate of your score for free through ad-supported sites like Credit Karma (www.creditkarma.com). 

Getting a credit report

A credit report is the raw data in your credit file—basically all of the accounts you have used to borrow money in the past, or currently have established. 

The report also contains information on late or missed payments, or accounts that have been closed by the provider due to your past transgressions. 

You can get one free credit report (again, the raw data, not your score) per credit bureau every twelve months at www.annualcreditreport.com. 

Visit that site at least once per year for each bureau’s report to make sure there isn’t any incorrect information that may be harming your credit score, or any accounts opened and used by someone other than yourself. 

Boosting your score

Next week we’ll tell you what factors directly affect your credit score, and how you can improve your number now and in the future (and we’re guessing that the information will be of interest to adults of all ages).