This is your reminder to know your credit score and check it regularly.
It's easy to let your credit get away from you. I recently pulled up my score online to see how I was doing, and it was so low it surprised me. Turns out, I had a medical debt in collections -- a $102 bill from a doctor I visited two years ago. I moved right after that appointment, so the doctor couldn’t track me down to pay my bill. Fortunately, because I checked, I was able to quickly make the payment and get my credit score back on track.
Lenders look at your credit score, also known as your FICO score, to gauge how likely you are to pay back the money they lend you for a mortgage, auto loan or credit card. Credit scores range from 300 on the low end to 850 on the high end. A “good” credit score is generally considered something in the low 700s or above. Once you get down below 600, it's hard to get anyone to lend to you at all.
Here are six important things to know about your credit score, and how to keep it up in the good zone:
1. Having credit -- It may sound strange, but it’s hard to get credit unless you have credit. The companies that calculate your credit score have to have a credit history to build a score for you. That means you need at least one credit card open for at least six months to have a score, according to the FICO website.
2. Paying on time -- This is the single most important thing you can do for your credit score. Pay. On. Time. The more you pay on time, the higher your credit score will go. This includes credit cards, medical bills, car payments, student loan payments and, if you're lucky enough to have one, your mortgage.
3. Opening credit cards -- The key to a good credit score is the ratio between how much credit you use compared to how much you are extended, so having a couple of cards can be good for your score. That ratio should be less than 30%percent. For example if you have a $10,000 credit limit, keep your spending below $3,000 per month. That means it’s only a good strategy to have a couple of cards if you feel like you can have them without spending too much on them, and pay them off every month. If you don’t know if you can’t do that, don’t tempt yourself.
4. Closing credit cards -- Closing a credit card means a temporary ding in your credit score. However, having unpaid cards is much worse, so sometimes closing a card can be worth it.
5. Having medical debt -- Obviously, big medical debt from being uninsured or having a significant accident can be disastrous for your score. But small debts from doctors’ or dentists’ offices can hurt your credit, too. Doctor’s offices are generally pretty bad at finding you (see the story above!), so if you have moved recently, make sure your doctors know how to find you.
6. Knowing the difference between your credit score and credit report -- Your credit report is the information used to compile your score. While it's helpful to know your score, your credit report is where you want to go to really get a sense of what makes up your score, and to check for any mistakes that the reporting agencies might have made, because knocking you for debt you're not responsible for does happen.
It used to be hard to get your report without paying for it, but the Consumer Financial Protection Bureau recommends using the website AnnualCreditReport.com, where you can get one free official credit report every year. (You can also request your report by mail or by phone at that site.)
Increasingly, credit card companies like American Express, Bank of America (if you have the consumer credit card) and Barclaycard will also provide you with your score for free when you log in to your account.
There are plenty of other websites out there, like Credit Karma, that advertise free credit scores. But they don't always offer the official FICO score, and they often are trying to get you to sign up for a new loan or credit card.
There's more information about how to obtain your score for free here.
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