Kathleen Entwistle gave us the 411.
Who’s up for a little financial lesson? It’s a good one, and arguably one of the most important, so we suggest taking out a pen and paper or opening the Notes app on your phone. Today, we’re talking all things credit scores. As in, what the hell does it mean, can it ever get in your way of purchasing items, and how can you improve it? Naturally, we wanted to get you guys the best advice possible, so we got in touch with Kathleen Entwistle, SVP at UBS Wealth Management, who broke it all down for us. Ready, set, learn.
WHAT IS A CREDIT SCORE?
“It is a number that measures your likeliness to pay back borrowed money. It represents the risk a company takes in lending you money. Companies that lend money will check your score on file with one or all of the three main credit bureaus that assign you a credit score. If you have a higher score, you are more likely to get approved for a loan, whereas if you have a lower score, you are more likely to be declined for a loan.”
HOW IMPORTANT IS IT?
“Your credit score is your DNA for financial habits. It will follow you everywhere and be a part of your financial picture. A higher score is an indication of good financial habits, and it’s more likely you will receive not only the opportunity to borrow money, but to borrow that money at a better rate because you have a stronger credit rating. A better rate is a great reason to pay attention to your spending habits and to be responsible with your money.”
CAN IT EVER NEGATIVELY AFFECT YOU?
“Yes, it can! So pay attention and start forming good money habits now. Would you want to lend money to someone who may not pay you back? Probably not. Not having credit can prevent you from purchasing some much-wanted, and possibly much-needed, items. Loans for cars and homes are examples.
“A bad credit score may also prevent you from getting major credit cards and cards for retail stores. Credit is convenience, [and] credit is also access; sometimes we need to make a purchase that we didn’t plan on, and a credit card can fill in for cash in a pinch. It is hard to build up good credit once you have damaged it. If you have a low credit score, the best way to address it is to start your good habits now and wait. It takes time to build it up!”
WHAT CAN YOU START DOING *TODAY*?
“There are a number of ways to improve your credit score.
1. “The most important one is to pay your bills on time! If you are late for a payment (more than 30 days), this will be a negative and will be reported on your credit report and stay there for seven years. Think of it as your report card.
2. “Pay off debt, and keep your debt low that you carry on credit cards. Lenders want to know that you are not maxing out your credit cards and you know how to manage debt.
3. “Don’t apply for credit unless you need to, and don’t do it often. Multiple requests can make it tempting to overspend, and too many inquiries may also affect you negatively.
4. “Make sure that your credit report is accurate. If you pay off a lease on a car, or if you close out a credit card, make sure it is reflected on your report.
HOW CAN YOU BEST TRACK YOUR CREDIT SCORE?
“The best way to track it is to understand and keep up with the actual number. According to Equifax, if you are exceptional, your number will fall between 800–850. This truly is an excellent number, and about 21 percent of the population will fall in this category. Twenty-five percent of the population falls in the very good category with a score anywhere from 740–799. I would challenge you to set a goal for yourself. The goal is to be so exceptional with your financial habits that you not only increase your likelihood of being approved for credit, but you also increase your likelihood of being offered the very best rates.”
WHAT ARE THE BEST RESOURCES FOR YOUR CREDIT SCORE?
“Experian, TransUnion, and Equifax are the three bureaus that provide information on you and your spending and repayment habits. You can request a free report once a year from each of the three bureaus. A good strategy might be to request one every four months, so you can periodically review your activity and how your behavior affects your number.”
ANYTHING ELSE YOU’D LIKE TO ADD?
“Pay attention to your credit score early on! It is so easy to jeopardize your credit score and so hard to get your score up once you have made a few bad decisions. Think of your credit score as a reflection on you and your level of responsibility and ability to make good money decisions. Your credit score is your financial brand and your financial reputation. Do everything you can to protect it.”
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