The following is a staff post from Crystal Stemberger of Budgeting in the Fun Stuff, a personal finance blog about saving for the future, paying the bills, and budgeting in a ton of fun along the way.
Your credit scores can affect your ability to borrow money or even get a job. The good news is that you can improve your score even if it isn’t where you’d like it to be right now.
Determining Credit Worthiness
Credit scores are used to determine the credit worthiness of a borrower by a lending institution. Even if you are debt free right now, banks use credit scores to determine who they should lend money to and at what rate they should lend that money at. A borrower with a low credit score will have to pay more in interest to borrow funds. A borrower with a higher credit score can borrow money at a lower rate since they are lower risk in a lending institution’s opinion.
Paying Debts On Time
Borrowers that pay back their debts in a timely fashion will see their credit scores rise over time. If you want to ensure that you have a good credit score, then you should at least make the minimum payment within 30 days so your debts are reported to the three major credit bureaus as being paid on time. You will also be able to avoid paying late fees as an added bonus. Banks like to lend to borrowers that have shown that they repay their debts as agreed.
If you go overboard with your use of credit, then your credit score will drop. It is never a good idea to use your credit cards to their full limit. Having a good credit score means paying your balances down and having a large amount of available credit most of the time. This shows lenders that you do not need all of the credit that you have available, so you would probably be able to handle your debts appropriately. Banks look at lenders who are maxed out as credit risks and assume that they could potentially default on their obligations.
Keeping your Credit Inquiries to a Minimum
Maintaining a good credit score also means not letting too many people pull your credit. You should limit the number of inquiries on your credit since banks look at this unfavorably. Hard inquiries from multiple lenders should be avoided whenever possible. Banks view a borrower as risky if they are shopping for credit in multiple places at the same time. Too many inquiries in a year will cause your credit score to fall.
Checking your Credit Reports and Score for Free
Remember to check your credit reports at all 3 bureaus – Experian, Equifax, and Transunion – at least once a year for free using www.annualcreditreport.com. You can check one every 4 months if you space them out properly. You can also check your Transunion credit score itself for free as many times as you want at https://www.creditkarma.com/. Staying on top of your credit is simply a good idea.
My Take on Credit Reports and my Credit Score
Even though my husband and I aren’t planning to finance anything else anytime soon, I keep an eye on our info regularly. I check one of our reports every 2 months on a rotation to make sure all of our information is correct. I also check our credit score at least once every 6 months to ensure we are credit worthy in case something pops up.
How do you keep an eye on your credit?