Many people don’t understand how credit works. To be honest, you usually don’t need to know much to still make good decisions for your credit and to build up a good score, but you can be much more effective if you learn the basics. Studies show that consumers who took credit literacy courses lowered their revolving debt by an average of $6,000. Knowledge in this area really does have tangible results in improving your financial situation. April is Financial Literacy month, and it’s the perfect time to learn more about how your credit score affects your life, how it’s calculated, what you can do to improve it, and other great financial behaviors.
Take the Time to Learn More
Ultimately, the best way to become literate in anything is to do your research. This simple guide will give you a good overview of the basics about credit, but after that you could benefit by diving deeper into the subject. Of course, it is a good idea to start small. After reading this guide, take a look at these sources:
- The CreditRepair.com blog – Our blog is a great source because it keeps things simple and easy to digest. This should be where you take your first step into taking financial literacy. It also provides information on a wide range of different topics, giving you a well-rounded understanding of credit. Plus, our catalogue of information is always growing, so check back regularly to continuously grow your knowledge.
- The National Foundation for Credit Counseling – Once you have an understanding of the basics, turn to this foundation to deepen your knowledge. This nonprofit financial-counseling organization educates consumers on credit and other financial issues. You may be happy to hear that receiving credit counseling does not negatively impact your credit score.
- The Consumer Financial Protection Bureau – This government agency strives to assist consumers and promote legislation that empowers consumers to take more control over their finances.
The Three Big Credit Bureaus
The first thing you need to understand about your credit score is where it comes from. There are many consumer credit bureaus out there, but the three biggest ones that lenders turn to are Equifax, Experian, and TransUnion. These companies examine your financial information to create reports that record your credit history. It is important to keep in mind how these bureaus gain the information their reports are based on. This happens in three ways:
- Receive financial information reported by creditors
- Purchase financial information
- Receive financial information shared by other bureaus.
Another aspect to the way the bureaus work is that your credit reports may differ slightly depending on the bureau. This is because the three credit companies may have varying information about you. Not all financial information is required to be reported, and many creditors only report it to one or two of the three major bureaus. Additionally, it may be helpful to understand that there are many different bureaus, each using slightly different standards. The Consumer Financial Protection Bureau offers a useful list of these bureaus, organizing them by their differences. The most important thing to remember is that these bureaus’ reports determine your credit score, which affects how likely you are to be approved for loans.
Managing Your Credit Score
Now that you have an understanding of the basics, you can start learning about how you can manage your credit score. To start, consider the different aspects that are used to calculate your score in the first place:
- Payment History – This aspect is basically how well you have made payments in the past. This lets lenders assess how risky it would be to lend to you in the future. Payment history accounts for 35% of your score.
- Credit Utilization – Having a good utilization ratio between how much credit you use versus how much is available to you generates a strong score. The ideal is for this ratio to never exceed 30%. Credit utilization accounts for 30% of your score.
- Length of credit history – This is essentially just how long you’ve had your accounts. Closing an old account may negatively impact your score, because it lowers your length of credit history. This accounts for 15% of your score.
- Inquiries – Applying for new credit is all part of building your history, but excessive applications hurt your score because they make you appear risky. Inquiries account for 10% of your score.
- Credit Mix – Having different types of credit strengthens your score. If all your credit is in the form of a credit card, it does not reflect well on your ability to handle different types of debt. But having payments on student loans, mortgages, credit cards, and more shows that you are capable. This accounts for 10% of your score.
You can get a free credit report once a year. This is a great way to keep tabs on your progress.
Search for Inaccuracies and Negative Items
With your credit report in hand, read through the information on it and make a list of everything that you don’t recognize or that you know is inaccurate. If there is any negative information that is inaccurate, it is likely hurting your credit score. If you challenge these items and they are removed, it can help boost your score.
Of course, this may be simpler said than done. It is possible for you to handle this yourself, but this is also what CreditRepair.com does. Allow us to take care of challenging the negative inaccurate items. Due to our extensive experience in the field, we can identify areas of improvement on your credit. If the bureau can’t prove that the items are accurate, it is required by law to remove them. By working with CreditRepair.com, you can be confident that your credit repair needs are being handled.
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