Check out this study from Princeton.
“[The] study found that as many as 34 percent of Americans have never even checked their credit reports. Princeton Survey Research Associates conducted the research in April, polling 1,000 adults.”
That means that nearly 110 MILLION Americans have never checked their credit score despite the fact that it’s essential for responsible financial planning — not to mention it’s an incredibly easy way to get started down the right financial path.
It’s especially ridiculous when you consider the fact that improving your credit score is potentially worth nearly $100,000.
This is an awesome example from Ramit Sethi’s website.
Consider two people:
- Abby, who has great credit (760)
- Derek, who has poor credit (620)
In their 30s, they decide to buy houses. How much do you think they each pay?
Spoiler alert: Not the same amount. If you’ve purchased a house recently (or tried to based on our market) you know the difference good and bad credit can make.
Check out the graph below:
Source: MyFico.com. Data calculated in June 2017.
So 100 million people are missing out on this potential saving technique.
So what two reason stop people from checking their credit score:
- People don’t know HOW to check their credit score
- People feel guilty about their credit situation
Today, I’m going to show you the exact steps you can take to address these two issues — and how you can even get started IMPROVING your credit score.
How to check your credit score
Before we get started on how exactly you check your credit score, there’s an important piece of information you need to know:
Your credit score is NOT the same thing as your credit report.
Many people conflate the two or seem to think that their credit report will provide their credit score information — this couldn’t be further from the truth.
Here’s a description of both and a tip for finding your credit score:
What is a credit report?
This is an all-inclusive report detailing your credit history. It’ll include information such as your:
- Loan history
- Accounts opened and closed
- Payment history
- Credit balance
You’re entitled to a free credit report each year, per the Fair Credit Reporting Act.
Generally, though, you’d want to request one of these if you think you’ve been unjustly denied anything due to your credit.
To get a free credit report, there are three major companies that will provide them for you:
It doesn’t matter which one you use, they’ll all be able to provide you the same information. The report is the data used to calculate your credit score. If you’ve read the news recently, you know about the Equifax scandal. By all accounts, this is fixed and you should be good to go using any of the three services.
Note: some credit cards give you a free credit score as well. Check your online login. Wells Fargo and Discover both offer this service.
What is a credit score?
Your credit score is an actual number — the same number that renters and lenders will utilize in order to assess how safe it is to have you as a customer.
And while your credit score and credit report are two entirely different things, your score comes from the information in your report.
The actual number is determined by the following information and their associated weight in relation to your score (credit score formula courtesy of Wells Fargo):
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- How many types of credit in use: 10%
- Account inquiries: 10%
Checking your credit score is incredibly simple. There are a seemingly endless amount of sites and services out there that’ll provide you your credit score, but here are a few notable ones that will provide you your score for free:
“My credit score is XXX. Do I have good credit?”
Your credit score will be within a range of 300 and 850. The range determines whether or not your score is solid — but a good rule of thumb is the higher your credit score, the better you’re off.
Below are a few ranges from Experian and what it may mean for you.
- 850 – 800: This is a fantastic spot to be with your credit score. Rest assured, if you’re here, you’ll have no problem securing a loan or a good down payment percentage on your home.
- 799 – 740: Though not the top spot, this is still a very good area to be. You’ll be offered great rates here.
- 739 – 670: This is an okay credit score range — though not great. With a few small changes, you could easily bring the score up. Focus on closing unused accounts and consolidating loans first.
- 669 – 580: This is when you should start worrying. If your credit score is here, you’re considered a subprime borrower and won’t get very good rates at all. Reduce your debt load and work on your payment history in this band.
- 579 – 300: Here you’re likely not to be considered for a loan at all and will run into numerous issues with things like getting approved for apartments. You should find a non-profit credit counselor and ask for help.
If your credit score falls below 580, you’re going to want to do all you can to improve it ASAP. Look at those five factors a move and try and attack the areas you know you can improve.
We currently have around 15 credit cards a credit limit over $150,000. Our current usage is under $2,000. If you are struggling with this area, shoot us an email and we can give you tips on how to improve your credit today!
Stop feeling guilty about your credit score
One of the most common reasons people don’t look into their financial situation — whether it be through their credit scores, bank statements, or credit card bill — is simply because they feel guilty about it.
It’s called the paradox of guilt and many people don’t even realize it’s happening to them before it’s too late.
We’ve all been there at the end of a weekend. You know you spent too much on eating out or shopping and now you feel guilty and want to avoid you’re bank account until that next paycheck.
It’s the same with people in credit card debt — many don’t even know how much debt they have! They’d rather avoid their statements and bury their head in the sand than face the reality of how much they owe.
Which is why if you truly want to stop feeling guilty about your credit score, the first step is being honest with yourself and facing the truth: Your credit score sucks.
BUT there’s another bigger truth you need to understand:
A close personal friend of ours managed to improve her credit over 50 points in less than a year. Keep a low balance. Use less than 5% of your credit line. Pay your bills on time.
Dominate your credit the rational way. If you need help with debt, read this.
Stay rational.
-B&T