Skip to main content

Consumer Credit Education

  • Updated

The Value of Establishing a Credit Score

Establishing and maintaining a credit score is essential for consumers in today’s economy. Most people do not possess the means to rely solely on cash or cash equivalents for purchases so the ability to responsibly use credit is essential. Establishing and maintaining a favorable credit score may translate to lower monthly payment amounts for such things as cars, homes and education.

Your creditworthiness is often defined by a three-digit credit score with Experian, Transunion and Equifax being the largest consumer reporting agencies and therefore the most likely sources of your credit score. Good credit can be the make-or-break detail that determines how affordable or even whether you get a mortgage, car loan or student loan. Bad credit, on the other hand, will make it difficult to obtain credit on favorable terms and will be more expensive when available.

Ways to Establish a Credit Score

Establishing a credit score is not an instantaneous process and can generally take between two to six months or even longer if the person is starting with no credit history. Anyone under the age of 18 for example will have a more difficult time with establishing credit since most lenders will not extend credit to minors. There are multiple methods a person can use to establish a credit score. Some of the most common methods are listed below:

  • Obtain a secured credit card
  • Become an authorized user on an established credit users account
  • Pay utility bills on time
  • Take out a credit-builder loan
  • Pay off all credit balances each month

Factors That Impact Credit Score

Your FICO credit score, one of the two primary scoring methodologies, is determined by the following five factors:

  • Payment history (35%): Paying on time or late

  • Credit utilization (30%): How much of your available credit is being used

  • Length of credit history (15%): The duration of active credit accounts

  • Credit mix (10%): A combination of different credit types

  • Recent credit inquiries (10%): Hard inquiries from applying for new credit

Ways to Improve a Credit Score

  • Make payments on time or early: Missing a payment can have serious negative effects on your credit score and will stay on your credit report for several years 
  • Keep credit accounts open even if not in use: Your credit report only tracks active credit accounts so closing credit accounts shortens your credit history and may ultimately harm your credit report. 
  • Maintain a mixture or combination of credit types: Your credit score may increase by maintaining a combination of revolving credit and installment credit 
  • Limit how much you apply for credit: Lenders often consider hard inquiries on a credit report or applying for multiple credit lines in a short amount of time to be indicate of risk.  
  • Check your consumer report for errors: Errors do occur on occasion so it is important to address such errors quickly

Ways to Check Your Credit Score

  • Check your credit card or loan statement: Many credit card issuers, banks and other financial institutions provide credit scores on their statements
  • Purchase credit scores directly from consumer reporting agencies: The scores will often be included as part of suite of services like credit monitoring
  • Use a credit score service or free credit scoring site: Websites like Credit Karma will often provide its members with their FICO score

Ways to Obtain a Free Copy of Your Credit Report

Federal law entitles US citizens to a free copy of their credit report once every 12 months from each of the three nationwide credit bureaus. Consumers may access their free reports by visiting www.annualcreditreport.com.

  • Online by visiting AnnualCreditReport.com
  • By calling 1-877-322-8228 or 1-800-821-7232
  • By mailing the credit report request form to:
    • Annual Credit Report Request Service
      PO Box 105281
      Atlanta, GA 30348-5281

Ways to Dispute an Error on Your Credit Report

  1. Start by disputing that information with the Consumer Reporting Agency (Experian, Equifax, and/or Transunion). You should explain in writing what you think is wrong, why, and include copies of documents that support your dispute ○Provide as much detail as possible to ensure your dispute is taken seriously as disputes that are considered frivolous do not need to be investigated.
  2. Include the following information in your dispute
    • Contact information
    • Identify each error you want fixed by including a copy of your consumer report that contains the disputed items indicated
    • Provide a clear explanation of why you are disputing the information
    • Request that the information be removed or corrected
  3. Wait up to 45 days for CRA or furnisher to complete their investigation
  4. Review investigation results and supporting documentation

 

Related articles