March is National Credit Education Month. So now is a good time to think about your credit. There are some misconceptions out there about credit—so here are a few facts to make sure your credit is on the right track.
Know the difference between credit report and credit score: According to a 2016 survey by National Foundation for Credit Counseling® (NFCC®) and Boeing Employees’ Credit Union, of those who didn’t order or receive their credit score, 36 percent said they didn’t know of a reason to do so, while nearly one in ten (9 percent) said they already had their credit report so they didn’t think they needed their credit score.
FACT: A credit report and credit score are not the same thing. A credit report is a compilation of credit-related information; a credit score is a three-digit number taken from the report data. It’s important to know both to make sure your credit is on track.
Know who may use your credit score. Most people think that only lenders—financial institutions, such as credit unions, and credit card companies are interested in your credit score. According to a 2016 survey by the Consumer Federation of America (CFA) and VantageScore, the majority of those surveyed didn’t know credit scores are used by non-creditors.
FACT: Utilities, such as gas and electric, may use credit scores. Others who might use your credit score? Home insurers, cellphone companies, and landlords. So it’s important to make sure there are no bad surprises in your report.
Need to Use Credit Cards to get Credit. It’s true that using credit cards can help you establish a credit history. But you have to be careful on how to do so; otherwise you may end up, not only with a great deal of debt, but also with a bad credit scores, ironically. And it wouldn’t even matter if you were making payments on time or even paying more than the minimum amount.
FACT: It’s important to note that your credit score may still be hit negatively due to the amount of credit you use. The credit utilization ratio compares the amount of credit you’ve used to the amount of the credit available to you. A higher credit utilization ratio can negatively impact your credit score. In the same vein, a lower ratio can give you a more positive credit score. Financial experts suggest keeping your ratio between 30 to 35 percent. For example, if your credit limit is $2,000, try to keep your balance between $600 and $700. One more thing: CreditKarma has a great infographic detailing the economic impact of your credit. Check it out.