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The Quick Guide to Managing your Credit in 2017

Not unlike your report card in school, your credit score is a reflection of your financial aptitude as it relates to borrowing - and repaying - money, and is a fundamental part of your money management skills. Credit scores are a numerical representation that attempts to capture how safe or risky it would be for a lender like a bank, credit union, or credit card company to loan that individual money.

Credit scores evaluate all lending and repayment aspects of an individual’s credit history like:

  • Do they pay their monthly payments on time?
  • How much do they borrow against their worth?
  • What percentage of their available credit do they take advantage of (and how often)?
  • Have they ever missed payments?

All these factors (payment history, credit utilization, average credit age, and account mix) essentially try to determine how likely a person is to pay their bills responsibly. The more likely you are, the more willing credit lenders will be to give you credit and the better rates you’ll likely be eligible for.

What is a FICO Score?
A FICO score is a specific type of credit score administered by the Fair Issac Corporation that considers the same factors as many of the major credit bureaus, in addition to a potential borrower’s credit report to arrive at a numerical evaluation of their “creditworthiness” or likelihood they they’ll be a low-risk borrower for the lender to take on. FICO scores are administered on a scale between 300 and 850, anything above 650 being considered “good” credit.

How do I Check My Credit Score?
According to the FTC, you’re entitled to access your credit report for free every 12 months. This credit report will include scores from the three major credit bureaus in the United States (Equifax, TransUnion, and Experian.) Visit the FTC’s website to order your credit report.

How Can I Improve my Score?
If you’re not happy with your current score, or more likely, the interest rates you’re being offered on credit cards or car loans, even a mortgage, there are some steps you can take to benefit your credit for the long term.

  • Pay on time - Not only does this help you avoid steep late fees, it also establishes your trustworthiness as a borrower.
  • Improve your debt ratio - the rule of thumb is to try to keep your credit utilization (the amount of money you borrow against your limit) to around 30%. This just helps to demonstrate to banks that you’re a responsible, stable borrower to work with.
  • Establish a pattern - Granted, this takes time, but it’s worth it. The longer you’ve had credit, and managed it responsibly, the more attractive you’ll appear to lenders.

Like managing your savings and spending, managing your credit wisely is key to your money management hygiene. We’re here to help you find the resources to make the right decisions when it comes to money management, and more. Learn more about our money management tools, or give us a call at 1-800-321-DIME (3463) today to see how we can help.