There are many reasons why you should care about your credit score. You should care about it every day if you want to maintain and grow your credit. Even if you’re in the clear, this is a relatively inexpensive way to prevent or at least delay the onset of trouble. Here are some reasons you should care about it:
Saving or Debt Financing
I want to take a vacation to the islands? My credit score should tell me how much I can afford to spend.
I want to take a low-interest loan for my business? My credit score should tell me how much my business is worth.
All these things have different factors. Therefore, we need a variety of credit scores. The best one may be different than the best available credit score from a bank. It’s OK if that’s the case.
Outlining Your Options
I hear a lot of people describe their credit score in one term: “OK.” “Fantastic.” They don’t discuss the challenges, and there are quite a few.
You might be able to manage the credit cards and may be able to get a relatively low-interest rate on a credit card. That’s a positive. But the debts you have will affect your credit score. If you get into a situation where you don’t have enough money for rent or a car payment, you’re screwed.
The priority is to keep your credit utilization ratio (the amount of credit you’re using versus the amount you have available) down. But the second priority is to keep your debt ratio (the amount of the total debt you owe divided by your total available credit) under 50% for your credit score to be high.
Keeping an Eye on Your Credit Report
You’ll want to keep an eye on your credit report. This report is usually annual (but you can request a report sooner if you need it) and has important information about your credit and loans. The most important report is the credit report. There are usually three credit reports:
- This one shows the accounts that you have open in your name and how much money you owe. If you have a credit card balance and you know you can pay it down, you should close the account. If you don’t know that you can pay it down, close it anyway.
- This one shows balances, but you don’t have to show credit utilization to the credit bureaus unless you have requested it (this usually happens with student loans).
- This one shows what your credit limit is.
The best way to improve your credit score is to keep an eye on all three of these reports. Your report contains information on your debt and your payment history. By paying them on time and paying your balances down, you can strengthen your credit and help improve your score.
Watching for Delinquencies
Another thing to keep an eye on is delinquencies. The FICO score uses payment history to calculate your score. You should be able to pay your bills on time, so if you have any problems, get ithemsorted out.
The credit bureaus may also give you the option to check on your current delinquency rate. You can use that to assess what is and what isn’t affecting your credit score.
For example, in some states (California and New York, for example) you can get a free copy of your credit report. If you see that your credit score is low, you can use that to get a free credit score.
If you have good delinquencies, your credit score will improve (there are other factors, like your credit utilization ratio, that affect that score, so it won’t just improve because of the delinquency).
Your Borrowers’ Identity
You don’t want to be surprised by identity theft, so you need to check your identity. You do this by opening a free fraud alert on your credit. You can get these alerts on your Social Security number and, to a lesser extent, on your credit card account number and other account information.
You have to contact the three credit reporting bureaus (Experian, TransUnion, and Equifax) to open the fraud alert. For example, for Experian, you need to call 888-397-3742 and ask them to set the fraud alert.
TIdentitytheft is never reported to the credit bureaus. When you need to take a loan or mortgage, you’ll want to use a fraud alert. The fraud alert will look something like this:
It lets the credit bureaus know that you’re taking out a loan or mortgage and that they shouldn’t report your account to others until you provide additional information.
It’s usually good for 90 days. You can’t change your financial information on your credit report when you have a fraud alert on it.
For example, if you decide you don’t need the loan after you open the fraud alert, you can change your information at any time by calling Experian to remove the fraud alert.
However, if you ever see that you’ve been the victim of identity theft and you don’t need the loan, you can lift the fraud alert. If you remove it, the credit bureaus won’t report to the others that you’re applying for a loan.
A fraud alert protects you against identity theft while you are applying for a loan, so this one is very important.
Tax Identity Theft
Tax identity theft doesn’t happen a lot because the IRS tries to check all of the ID numbers you use to file your taxes. If you use Social Security numbers, the IRS will check those before sending the information to the tax bureau.
However, if someone gets your tax ID number and the information on your taxes, it’s easy to file them and file a false return.
According to the IRS, tax identity theft is the crime of using someone else’s Social Security number or other identifying information, to prepare and file a tax return in someone else’s name.
You can check to see if you’ve been the victim of tax identity theft by visiting the IRS Web site. You can also contact the Federal Trade Commission.
Employment and Income
While it’s important to keep your identity locked down and to check your credit reports, it’s also good to know what you can do if you have a job or income.
There are two main types of identity theft related to employment: employment-related identity theft and non-employment-related identity theft.
Non-employment-related identity theft occurs when someone steals information from your employer. If they gain access to your Social Security number, they can use your number for any purpose they choose. If they change your name, you’ll be responsible for any debts.
If you’re in the military or your spouse is a member of the military, the military will check to make sure that your information is up to date on your report.
Employment-related identity theft happens when someone stole your Social Security number to get a job in your company. An employee can “borrow” your Social Security number, but they have to know it.
Employers have to report payroll income if the number on the paystub doesn’t match the name on the Social Security card. If you’re working for someone else, you can prevent payroll theft by making sure all paystubs and W-2s are up to date.
You can also prevent employment-related identity theft by keeping a copy of your Social Security number. You can photocopy your SSN and keep it in your wallet or purse.
On average, there are about 2.5 rental properties available per household, but only one owner. It’s not hard to see why anyone with bad credit can be turned down for a rental. Therefore, the ratio of properties to people with good credit is important for the rental market.
It is hard to explain why it’s important without someone telling you that you should care about this. If you understand, you’ll realize it’s an important factor for the rental market and the other factors we’ve discussed.
If you have bad credit, it’s very hard to get a loan. If you want to buy a house, you’re usually trying to qualify for a mortgage, not a car loan.
At the same time, your credit score matters so much that a large number of lenders will require you to have a credit score when you apply for a loan.
10. Credit Checks
Using your credit is quite common. While everyone needs to have credit and debit cards, every bank, credit union, and even big-box store checks your credit to make sure you’re not a fraud.
No one needs to know that they are “borrowing” from you. However, iyou must knowthat your bad credit matters to these institutions.
The mortgage has to be originated by a bank or a mortgage company. That’s where your credit score comes in. They can’t make money without a credit score.
It’s not just car loans, it’s also used for many other things. Car loans, for example, have an awful lot to do with your credit score. If you’re buying a house and the bank determines you’re a bad credit risk, they can refuse your loan.
It’s not just for phones. Almost every cell phone is subsidized by a wireless carrier. We can choose a wireless plan, and they often come with a device like a tablet or a laptop. While it’s cool to have a phone on the go, the credit score on the device is also important.
You can’t buy something, then send it to ssomeplacewhere someone will open your phone and check your credit. So, it is important to carefully manage your phone credit to keep your score up.
Debts and Collections
You have a lot of obligations, and they don’t stop when you finish the first one. You may have an electrical bill, and you’re told that you need to pay it by a certain date.
The next week, you get a similar bill from the electric company. And the next month you get another bill from the cable company.
If you’re spending money that you don’t have, and you don’t know how much you can afford to pay, it’s easy to get in trouble with credit. That’s why it’s a good idea to stay on top of your bills and avoid being in debt.
If you have a car or home, you need insurance. If you don’t have any, you’ll either get charged with fraud, or you’ll go without insurance. Insurance rates are set by risk.
So, if you have bad credit, you are considered more of a risk to the insurance companies. In addition, the people who buy insurance tend to look at your credit history when determining the price of the policy.
Online shopping is quite common. If you need a refrigerator, for example, you might go to the store. If you want to buy a new coat, you might buy it online.
So, iyou must keepyour credit score up. You can check it online from aseveraldifferent places, like Credit Karma or Nerd Wallet. You can check aseveraldifferent ways to see what your score is.