Frightened by Your Credit Score? A Little Info Goes a Long Way

Frightened by Your Credit Score? A Little Info Goes a Long Way
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Why you should care

Because a little knowledge can go a long way toward improving your credit score. 

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What scares Americans more than ghosts and zombies? According to a recent survey by Chapman University, money problems rate high on the list of things that keep folks up at night. And one of the biggest financial woes facing Americans? A bad credit score.

A frightening study by the Federal Reserve last year shows that:

30 PERCENT OF THOSE SURVEYED EITHER DON’T KNOW THEIR CREDIT SCORE, OR RATE IT AS FAIR TO POOR.

The good news is, no matter how scary your score, you can improve it, says Hector Hidalgo, a financial counselor at Neighborhood Trust, a nonprofit financial empowerment service. So how can you go about improving it? Neighborhood Trust has the following advice.

“No damage to your credit is irreparable,” he notes.

Follow the 30 Percent Rule

Hidalgo advises keeping your credit card balance at 30 percent of your card limit. That balance should be paid off in full every month. What you don’t want to do is leave a balance.

“I’ve had people come in who thought maxing out their credit card and paying it off little by little was the best way to build a credit history,” says John Figueroa, a senior financial counselor at Neighborhood Trust. “Which is a huge mistake.”

“It’s only when you don’t pay attention to your report that it can become a nightmare.”

John Figueroa, Neighborhood Trust

Hidalgo also advises against putting large items on your credit card, but instead recommends using it to pay off small, regular bills, like your cellphone or gym membership. Hidalgo says that consistently settling the balance in full and on time is the simplest way to improve your score.

Limit Your Cards

Sometimes, Figueroa says, having more cards can lead to a better credit score, though the right formula depends on the individual. Managing multiple cards can also cause problems. Figueroa recounts how one client racked up $40,000 in debt because he couldn’t keep up with the minimum payments required for several cards. One way to improve your score without adding more cards to your wallet is to simply increase the limits on existing cards, he adds.

Mical Jeanlys, General Manager of the Chase Slate credit card division, notes that different cards suit different people. “Examine each card’s benefits to determine which best complements your spending habits and goals,” she says.

Keep an Eye on Your Credit

“A lot of people are scared of facing their credit report, but the best way to build a credit score is to keep checking it,” says Hidalgo. One of his clients had an excellent payment history but didn’t check her report before applying for a loan. It turned out her grandson had defaulted on $15,000 worth of credit in her name. So there are various reasons to keep a close eye on your report.

Sometimes improving credit can be as simple as checking for errors, says Matthew Konsa, associate director of programs at Neighborhood Trust. He warns to look for old accounts that have been settled or expired under statute of limitations, as these can be removed. The length of time you’ve had an account open also contributes.

“If you check your report and it’s bad, don’t hit the panic button and close accounts,” Konsa advises. “The better way to improve your score is to work on reducing those balances.”

So what is a good credit score? According to Neighborhood Trust, around 700 is considered “good;” for “very good,” you’ll need 740-799, and 800+ is “exceptional.”

Today it’s easier than ever to access your credit information, thanks to widespread internet connectivity and a raft of new websites that monitor reports like Credit Journey, which allows visitors to get a free credit report annually. The tool also simulates how hypothetical spending would impact their scoring.

Knowing this information can go a long way toward improving your standing. So fear not: “It’s only when you don’t pay attention to your report that it can become a nightmare,” Figueroa says.