How to Check Your Credit Score

In the era of shiny plastic cards that promise to buy you the world, it is easy to be lured into spending money. And before you know it, you are knee-deep in debt and struggling to stay afloat.

With multiple day-to-day distractions, handling finances and keeping track of financial health can sound complex. However, one of the easiest ways of measuring your financial health is through a credit score.

What is a credit score?

A credit score is a three-digit number that indicates your ‘creditworthiness’ – meaning, how likely you are to pay off a loan that you take. The higher your credit score, the more likely you are to pay back a debt. Therefore, it is less risky and more beneficial for someone to provide you with credit, with the expectation that you can afford to pay it back. Your credit score is based on multiple factors:

o Payment history: This measures how consistent you have been paying off your liabilities. Any foreclosures of loans or repossessions of your property, as well as late payments of bills or bankruptcy charges, count against you and may bring your credit score down. Payment history makes up 35-40% of your credit score.

o Amount owed: This is the extent of debt that you have and the total of all amounts you owe to your creditors. It is another significant factor that may be about 30% of your total credit score. High outstanding balances and large loan amounts are likely to lower your score.

o Recent credit inquiries: If you have recently attempted to apply for multiple lines of credit, your score could suffer. Inquiries for loans or cards can make up to 10% of your credit score.

Typically, background checks by employers or requesting your credit report are called ‘soft inquiries.’ Soft inquiries generally do not affect your score because they are generated for the purpose of verification and do not mean you are looking to borrow.

However, ‘hard inquiries’ are generated when you allow a lender to access your credit score to process a credit application or loan. A hard inquiry implies that you are in need of borrowing money and can lower your credit score.

o Credit mix: Your credit mix is the different types of banking and loan instruments that you use. Each of these affects your credit score in a different way. For example, a property mortgage will lower your score less than a personal loan. Loans against any kind of security and bank accounts that have a significant positive balance can help improve your score. Your credit mix accounts for about 10% of your total score.

o Length of credit history: This is simply the duration of time for which you have been in the financial system and accounts for about 15% of your overall credit score. It takes into consideration your history of making punctual payments. Longer credit history is likely to contribute to a higher score, especially if you have a good track record of paying back whatever you borrow.

The resultant credit score from all these factors is calculated into your 3-digit credit score, which indicates how creditworthy you are. Credit scores usually range from 300 to 850 with scores[1]:

o between 300 and 579 considered low

o between 580 and 669 considered fair

o between 670 and 739 considered good

o between 740 and 799 considered very good

o above 800 considered excellent

A good credit score helps you get the best rates on mortgages and loans and great offers on credit cards as well. Roughly, less than 20% of people manage a credit score above 800[2].

Therefore, knowing your credit score is vital because it helps you understand where you are on the financial health spectrum and what steps you can take to improve your score.

How can you improve your credit score?

Improving a low credit score is not impossible but can take sustained time and effort. With some clear actions and patience, you can certainly raise your score and be ready for better credit options.

1. Setup payment reminders to pay on time

Have you ever remembered you were supposed to pay a bill the day after it was due? Out of sight can often mean ‘out of mind’ and it can be easy to forget to make a payment that you fully intended to make. By ensuring that all regular payments are made on time, you can improve your credit score over time.

o Consider setting up phone alarms or email reminders to pay monthly bills and subscriptions.

o When possible, automate direct payment of recurring bills from your bank account.

Not only will you be able to clean up your finances, but you can also start to track and make adjustments to your spending habits. Reducing the need to opt for credit is one of the best ways to improve your creditworthiness.

2. Review your credit report periodically

Track your credit history by analyzing your credit report at least once every 6-12 months. Note the things working in your favor and against you.

By pulling your report from a national credit bureau, you can keep track of damaging items such as maxed-out cards or recurring late payments on your account. Similarly, you can track payments you’ve made on time and ensure that you do not miss a payment in the future.

3. Pay maxed-out cards first

A maxed-out card is a massive red flag and can be severely damaging to your credibility. It means your borrowing ability is stretched beyond capacity and any new loans are likely to be denied. In addition, the longer your card stays maxed out, the more it can hurt your credit score. Prioritize paying off maxed-out cards first to avoid late payments and finance charges.

4. Keep credit utilization low

Credit utilization is the ratio of credit you have used to the credit limit available to you. For example, if the total amount you can potentially borrow on your cards and lines of credit is $20,000 and you have currently utilized $3,000, your credit utilization is 15%. It is best to keep your credit utilization below 30% and look for lenders that accept multiple payments in a month so that you can maintain this ratio.

5. Avoid unnecessary hard inquiries

The greater the number of hard inquiries on your profile, the lower your credit score will be. Hard inquiries can also be indicative of financial stress or issues, so loan and card issuers take a dim view if they occur too frequently. Therefore, try to ensure that you opt for a hard inquiry only when you absolutely need to borrow.

6. Check for guidance from your employer

Some employers offer benefits around debt consolidation counseling and credit planning. Check if any benefits are available to you or encourage your employer to invest in options that provide counseling or low-cost loan options.

There are also service providers that you can refer to your employer to get them to sign up.

7. Plan your credit

Lastly, a definite way to help improve your credit score is by planning your finances well. Evaluate your current financial status and devise a plan that fits your needs. For instance, if you have multiple credit cards but are ultimately unable to pay off the bills, your credit score will suffer. In such circumstances, it may be better to opt for a debt consolidation loan at a lower interest. Once damaged, it is not easy to fix your credit score, so pre-plan your credit.

How to check your credit score

While you may expect the three major credit bureaus to include your credit score in your credit reports, that is usually not the case. However, there are ways to obtain your credit score yourself so you can keep track and create more financial discipline for yourself.

1. Check your account statements

Keep track of your bank statements as well as statements from your credit card or loan providers. Additionally, certain financial institutions have started providing credit scores to customers as part of the statement or as a free service. So have a close look at your statement to see if it is included.

2. Get scores directly from credit bureaus

Credit bureaus are in place to help creditors and lenders by providing them with information to make informed lending decisions. The job of these bureaus is to collect information regarding your credit and share it with third parties in case any type of exchange is to take place. As such, these bureaus can also provide you with the same information so you can keep tabs on your credit score.

3. Use a free credit monitoring tool, like Kashable

Credit monitoring is an extremely important aspect of financial wellness that not only helps maintain your credit score but also keeps you safe from fraud and theft. A credit monitoring tool can send you alerts to inform you of any changes in your credit reports.

This gives you the opportunity to confirm if the change is accurate and act if it is not. It safeguards your account and keeps a watch on your credit score.

The free credit monitoring tool from Kashable is a great option to stay on top of changes to your credit score.

Kashable also functions as a financial wellness platform for employers and employees, aiming to provide financial education and low-cost loan benefits. Our platform helps you maintain and record your credit score and further reports to credit bureaus to help build your credit.

Kashable is a one-stop shop for financial issues you may be facing. In addition, it can support you in your journey to improve your finances.

Conclusion

The world of finance and credit can seem overwhelming. But, by building healthy financial habits, improving your credit score is possible.

Your best bet is to spend time understanding your finances and goals, and proactively work towards addressing any issues. Through low-cost and responsible loan options such as those provided by Kashable, you can restructure your debt and strengthen your credit score.

It’s never too late to start prioritizing your financial wellness.

Note: Credit scores are obtained by using complex modeling of financial data and paying a Kashable loan on time does not guarantee an improvement in your credit score.

[1] https://www.equifax.com/personal/education/credit/score/what-is-a-good-credit-score/

[2] https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/