If your answer is “no”, don’t feel bad; a recent study by the Consumer Federation of America and VantageScore Solutions found that there are many misconceptions and a general lack of knowledge among Americans when it comes to their credit score.
When you’re young, a credit score probably isn’t something you regularly think about, but as your level of financial responsibility increases, it becomes an important thing to keep track of. So what is a credit score, and how do you find out yours?
Essentially, your credit score is a snapshot of your borrowing history, comprised of information from credit card companies, financial institutions and other companies. This history is used to calculate your creditworthiness—in other words, your likelihood of being able to pay back money that you borrow.
Each time you apply for credit, whether you complete a credit card application, apply for an auto loan or sign a lease for an apartment, someone is probably checking your credit report. When it comes to loans, your credit score is a major determining factor on whether or not a lender will approve you. It can also affect your interest rate; the lower your credit score, the more likely you’ll end up paying more in interest.
Here are some tips to help you build and maintain a solid credit rating:
-Make your payments before the due date Remember, promptness counts! Making your payments ahead of schedule will not only help you avoid late fees, but it will keep your account from delinquency.
-Pay more than the minimum on all credit cards if you can. Having a high credit card balance relative to your credit limit can negatively affect your credit score. If you have a high amount of credit card debt, make every effort to pay down your balances as quickly as possible.
-Order a credit report once a year There are three major bureaus that house credit card information: Experian, Equifax and TransUnion. You are entitled to one free report per year from each of the financial institutions, so make a yearly credit check-up part of your life! If you notice any errors on your credit report, contact the issuing bureau immediately.
Want to test your knowledge? Take this quiz and see how much you know about your credit score!