Insurance and Finance

Giving You Credit

By Valirie Morgan 10.10.16

If you cheer when your favorite football team racks up a high score, you should have the same passion about your personal credit. Your credit score is much more than just a number — it can affect various aspects of your life, from buying a car or house to getting a loan for college or a small business.

There are plenty of theories about how you can help and hurt your score, so we’re separating financial fact from fiction to help you get the credit you deserve — no pompoms necessary.

The Ins and Outs

Many of us have no idea how our credit score is calculated. It’s a weighted combination of numbers from credit reports including your account payment history; outstanding debt; whether you pay your bills on time; and the number, age, and type of accounts you have. Obviously, the higher your score, the better, because it means you’re more likely to repay loans and make payments when they’re due. Shoot for the 800s to score a credit touchdown.

Federal law allows you to obtain a free copy of your credit reports from each of the three credit reporting agencies — Equifax, Experian, and TransUnion — every 12 months. To get your credit score, however, you typically have to pay a fee.

The More You Know 

Nearly 70 percent of Americans have little to no understanding of credit scores. For some clarity on the subject, study up with the following lesser-known credit-score facts:  

  • Don’t close existing credit card accounts. Doing so can hurt your score — even if they’re paid in full or you don’t use them. Closing old accounts can ding your credit utilization ratio by reducing the total amount of credit available to you. It can also reduce your length of credit history, which accounts for 15 percent of your score.
  • Potential employers can’t see your score. Your future boss only sees your report, and it’s not the same version as the one that lenders get. Credit bureaus sell a separate product called an employment screening for this purpose. These requests also can’t ding your score, unlike lender inquiries.
  • Maxing out your credit cards can hurt you. Even if you pay your bills on time and don’t go over your credit limit, you shouldn’t take it to the max. This behavior is viewed as an indication of financial stress, even if you’re not in money trouble. Don’t take this advice lightly — maxing out can lower your score by a staggering 10 to 45 points
  • You won’t pay for credit foibles forever. Late payments and negative items only stay on your credit report for seven years from the date of the first late payment. Bankruptcies take 10 years to be expunged from your record. Even though you may feel the hurt for some time, the effect on your credit score will lessen over time. 

Speaking of credit, check out this guide to security for your new chip credit cards. But once you get your score in shape, save the celebrations for the end zone.