<< All News Tuesday, February 12, 2019

By, State Treasurer Kelly Schmidt

We all hear a lot about credit scores and checking our credit and increasing our credit score but what does this all mean!?!

Many of us struggle as we try to understand what the “credit score stuff” really includes and why does it matter. Yet, we all know it is a deciding factor for financial institutions when determining if we will receive a credit card or a loan.

What exactly is a credit score? A credit score is a tool that lenders use to determine how likely it is that you or I will repay a loan or make a payment on a credit card.

There are three credit reporting companies: Experian, Equifax, and TransUnion. It is important to check your credit score at least once a year from one of these firms. However, I would encourage you to check your score annually from EACH company. For example, the first quarter of the year check your credit score from Experian, the second quarter of the year pull your credit score from Equifax, and finally from TransUnion. If married, you and your spouse may check a score from each company, however, do not check the same company in the same quarter. This allows the greatest FREE opportunity to find any errors in a timely manner or identify suspicious activity. Time is of the essence when challenged with a possible stolen identity.

There are two different credit checks. The first is referred to as a “hard inquiry” which removes a few points off your score. Hard inquiries occur when a financial institute, such as a lender or credit card issuer, checks your credit when making a lending decision such as a mortgage or auto loan. You typically have to authorize a “hard inquiry”. According to FICO (Fair Isaac Corporation, the creator of the software used to calculate credit scores), your score can drop 5 points with a hard inquiry but remember this does not last forever and that your score changes monthly.

The second is referred to as a “soft inquiry” which does not affect your credit score. This may occur when a credit card issuer checks your credit to see if you qualify for a special offer. Your employer may also run a soft inquiry before hiring you.

Now you have checked your credit score what does this number mean? The rule of thumb is the higher your credit score the better, scores range from 300 to 850. A credit score of 700 or above is considered good while a score of 800 or above is excellent. Payment history and if you have made your payments on time, the number of credit accounts and how long you have had them, total debt, bankruptcy, these all influence our credit score.

The financial decisions we make today have a direct impact on the opportunities we have tomorrow. Our credit score is one of them. To get your free credit report go to www.freecreditreport.com.


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