What are the most important numbers in your life? Your anniversary? Your significant other’s birthday? Your Social Security number? Your bank account balance? How about your credit score? You’re probably aware that it’s the figure with the greatest impact on your financial well-being. It can open and close so many doors.
But do you know your credit score? According to a CouponCabin.com survey, almost half of U.S. adults don’t know theirs. What’s more, more than a third have three or more credit cards, and one in 10 don’t know their credit card debt amount. With alarming statistics like these, it’s clear why so many Americans struggle to maintain their finances in a healthy manner.
The first step to improving your credit score is realizing you have a problem. Look it up. You’re entitled to one free credit report each year from AnnualCreditReport.com, but you’ll have to pay for your Fair Isaac Company (FICO) score, usually $7 to $9. There are three different three-digit numbers from the three main credit bureaus: Experian, Equifax, and TransUnion. Their scoring methodologies are essentially the same; however, each has a different amount of credit data, causing the score to vary from bureau to bureau. The credit score model you request may also change the score, which typically runs from 300 to 850. Here’s a rundown of the credit score ranges:
Most scores tend to hover from 650 to 800. Experian’s National Score Index shows that the average credit score in the U.S. is 688. Note that it utilizes a slightly different scale: 330 to 830. Your goal should be to, at the very least, have a score of 680. But it’s always best to strive for perfection.
Before you commence with rebuilding your credit, you need to understand what information is used to calculate your score. Your FICO score is determined using five factors that demonstrate your financial responsibility as a consumer.
In her recent article on Forbes.com, Bethy Hardeman dispelled some common myths pertaining to credit scores and what affects them, pointing out that your spouse’s credit score has no direct effect on yours, high debt doesn’t necessarily ruin your credit score, and people with bad credit scores got that way because of drastic actions like bankruptcies and foreclosures.
The good thing about your credit score is that your recent credit history is weighted more heavily than your record from the distant past, meaning that you can put yourself on the upswing in a hurry. Here are some actions you can take to ensure you get off to a strong start as you embark on your journey up the credit scale:
Of course, building and maintaining a good credit score is a long-term, never-ending process. Like dieting, it requires a full lifestyle change – your habits, your priorities, your values. Based on the above factors used to determine your FICO score, we can easily deduct what you need to do to improve your credit score:
Rebuilding your credit is something you have to do entirely on your own. It’s a matter of self-discipline and being aware of your debt and expenses. Do not seek help from a credit repair company. The Federal Trade Commission warns consumers of these scams, providing tips to help you identify them and instruction on properly disputing inaccurate information with a credit reporting agency.