What You Should Know About Your Credit Score
Understanding your credit score is important because it dictates how you can purchase your first home, a new car, obtain student loans or open utilities in your name. Making sure that you have an average to high score will ensure that you can have financial freedom and the life that you've always dreamt of having.
What is a credit score?
Your credit score is a number that represents what your worth is and how likely you are to pay back any money that you borrow. This information is pulled from your credit history including your student loans, utilities, the mortgage on your house, credit card repayment, doctor bills and anything else that you might have applied for using your social security number. If you're still in college make sure that you are returning your books to the book store on campus because those can go to collections as well. Your credit score ranges from 300-850, the higher your credit score the better. Your score is created by calculating the amount of money that you owe to doctors, your bills or lenders, the length of your credit history, how many accounts you have open in collections, and payment history. All of this information is linked to your social security number, so until you pay off your debts you won't be able to raise your credit score.
How can you check your credit score?
Checking your credit score is important in keeping your identity safe, as well as maintaining your credit score. Your credit report shows all active, closed and newly opened loans and collection accounts as well as any credit checks that may have occurred if someone tried to apply for a loan. This is a safe way to make sure that no one is trying to steal your identity, or trying to open any loans under your information. There are two different forms of credit reports that include both hard and soft credit checks. Hard credit checks are used when you apply for any large loan including student loans and home loans as well as credit cards and business loans. Each time you have a hard credit check on your report you can lower your credit score by 1 point. A soft credit inquiry won't hurt your credit and is mainly used for background checks or when you check your own score online. You can check your score using free websites such as Credit Karma.
How can you increase your credit score?
Not everyone has the perfect credit score of 850, but that doesn't mean that you can't work towards achieving a perfect score. While you can't increase your score significantly over night, you can take simple steps in repairing the damage that may have been caused in only a few years. The first step to take after checking your credit score is to write down all of your accounts and the amounts that are owed. You should also write down the contact information for each of these which can be found on your report. After doing so, call each of the collections agencies and let them know that you are aware of the money that you owe and ask for repayment options. All of these companies will allow you to make payments and some will even let you submit monthly payments as low as $10. If you don't have any collections accounts and instead have loans, make sure that you know exactly what you owe and how to repay those loans. Some repayment plans allow for you to pay back your loans based on your gross income.
If you have credit cards that you use, make sure that you are paying them off every month. Don't use the credit card like it's money that you don't have, use it in case of emergencies or use it and immediately pay it off. This will help to increase your score and will help you to stay out of debt.
Whether you're in debt, debt free or worrying about applying for loans, taking these steps will ensure that you have a financially secure future. Keeping your credit score high and your debt up to date and accurate will make it much easier when you're ready to graduate, work in the professional world and buy your first home.
Are you ready to check your credit score or need any advice on this process? Let me know in the comments below!
If you're more of a visual learner, watch this video created by Wall Street Survivor to learn more about your credit score!
Feature image by Andrea Chong.
A version of this has been posted previously on BSUlife.com.