Even after nearly a decade of sticking to responsible financial habits, I still get that familiar sinking feeling in the pit of my stomach when I know my credit score is going to be checked.
Yes, even I made all the classic mistakes. I missed a credit card payment or two, forgot about a hospital bill, went over the limit on my credit card, etc. I was your typical dumb collage kid that had no idea how important credit was. I, like many thought, no big deal I’ll pay more next month or I can pay it all off when I have a good paying job. My semi wake up call came when I got married and my husband had to pay off my Nordstrom card. Thanks to my husband who methodically pays all our bills on time, pays our credit cards off in full each month and tracks all our (my) spending, my credit is in excellent shape. My credit is just one point shy of my husbands, but it too years and could have easily been avoided. Yes, it could have been worse but I also could have saved myself a lot of stress had I done things right the first time.
It can be easy to convince yourself that you credit score doesn't matter much, but trust me it will not go away if you ignore it! With a good credit score you will have access to many more opportunities and it says a lot about your character because it means you are responsible and can be trusted.
You know your credit is checked when you apply for a credit card or car loan, but it can also be pulled by someone who is looking to hiring you or renting you an apartment. When you decide you’re ready to buy a home, a good credit score can save you thousands of dollars each month which may mean you can buy in your ideal neighborhood or the place with the water views instead of something less desirable.
A score of 720 or higher is considered good. Your FICO scores are what most lenders use to evaluate your credit. You have 3 FICO scores, 1 for each credit bureau (Experian, TransUnion and Equifax). Each score is based on information that these credit bureaus keep on file about you. As information about you changes, your FICO score is updated as well. It is not uncommon for your scores to differ with each credit bureau. It can vary, but here’s how a FICO score typically breaks down: 35% payment history, 30% amounts owed, 15% lengths of credit history, 10% types of credit in use and 10% new credit. If you are aiming for a top-tier FICO score, you need to maintain an active credit profile, meaning you use your available credit and you pay off your debts regularly which provides proof that you can manage your credit. Most experts recommend keeping your credit utilization rate under 30%. For example, if you have $10,000 available, you want to keep the amount you actually owe around $3,000. Fun fact, people with both very low and very high utilization rates have lower FICO scores.