Phil AmmannMarch is recognized as Credit Education Month. This time of year is dedicated to reminding consumers of the importance of developing the skills needed to manage their finances effectively.
Understanding how to build a good credit record, how your credit score is used and how credit can affect your financial life is the foundation of financial literacy.
Credit is the ability of an individual to obtain goods or services before payment, based on the trust that the payment will be made in the future. Your credit history is used to determine your credit score.
Checking your credit history, also called a credit report, with one of the credit bureaus (Equifax, Experian and TransUnion) at least once annually is a best practice. On your credit report, you can see the components that are considered in developing your credit score. The components include your amount of debt outstanding and your payment history.
Your credit score is one of the factors used to determine your creditworthiness. It influences whether you will be approved for a loan and the rate of interest applied to the loan. While varying credit scoring models exist, most credit scores range from 300 to 850. The higher the number, the better your credit score.
A high credit score is built over a period of time by carefully managing your finances. Paying bills on time and using between 10 and 30 percent of your credit line on your credit card will increase your score over time. Paying only the minimum due on your credit card will not hurt or help your score. Consistently pay more than the minimum to raise your score and build your credit. Late payments and a high debt to credit limit ratio will hurt your credit score. Having a high credit score can save you money over your lifetime.
It is important to monitor your credit score. It follows you for life. Checking your credit score on a regular basis can also help prevent financial fraud.
If you find fraudulent or incorrect information on your credit report, file a dispute with both the credit reporting agency and the company that placed the information on your report. You can also request a fraud alert on your credit file with the national credit reporting agencies. The fraud alert requires creditors to take additional steps to verify your identity before extending any credit.
Also, make sure you report the identity theft to the Federal Trade Commission at identitytheft.gov, and to law enforcement. For problems with a credit-reporting agency, file a complaint with the Consumer Financial Protection Bureau at consumerfinance.gov/complaint.
With preparation and planning, anyone can build good credit. I encourage you to share this information with your family. Help them prepare for a successful financial future by learning more about credit and how to use it wisely.
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Drew J. Breakspear is Commissioner of Florida’s Office of Financial Regulation. Column courtesy of Context Florida.
