Quick: What\u2019s your credit score, and when was the last time you checked it? Bonus question: What is a good credit score? <\/p>\n
Luckily, National Get Smart About Credit Day is here to help you deepen your knowledge of credit. Started in 2003 by the American Bankers Association Foundation, the yearly event on the third Thursday in October aims to educate consumers, especially younger people, about credit.<\/p>\n
\n
To mark the day, MarketWatch talked to experts about why understanding credit is important, and what credit-related facts people sometimes get wrong.<\/p>\n
For better or worse, a person\u2019s credit history and score impact many important areas of their lives, said Leslie H. Tayne, the founder and head attorney focusing on consumer and business debt matters at Tayne Law Group, P.C. Having good credit allows you to borrow money at lower interest rates, Tayne said.\u00a0<\/p>\n
\u201cBut your credit also impacts your ability to rent an apartment, open utility accounts, and even get certain jobs,\u201d she added. \u201cNot knowing how credit works or how to build good credit can mean paying more for everyday expenses and missing out on opportunities.\u201d\u00a0<\/p>\n
More people have had to confront this reality recently as access to credit has tightened, and more would-be borrowers are being rejected when they apply for new credit cards or to expand their current card\u2019s spending limit.<\/p>\n
A credit score can have far-reaching consequences. \u201cA single financial opportunity \u2014 like a first credit card, a first auto loan or a student loan \u2014 can be a critical step to establishing individual financial health and generational wealth that can change the trajectory and livelihood of families and communities for generations,\u201d said Aparna Shah, senior vice president and general manager of direct to consumer at Equifax
\n EFX,
\n +1.95%<\/bg-quote>.<\/span>\n <\/p>\nWhile most Americans (90%) say they \u201cat least somewhat understand what a credit score is,\u201d only 37% check their credit score monthly, according to a survey this year by Fair Isaac Corporation
\n FICO,
\n +1.49%<\/bg-quote>,<\/span>
\n which provides credit scores. <\/p>\nKnowledge about credit seems to accrue with age: Most baby boomers in the survey (96%) said they completely or somewhat understand credit scores. Meanwhile, one in five members of Gen Z said they \u201conly understand credit scores a little or not at all.\u201d And 29% of Gen Z members said they either didn\u2019t have a credit score or didn\u2019t know if they had one, FICO found.<\/p>\n
For National Get Smart About Credit Day, here are seven facts about credit and credit scores that you may not know, but should, according to experts.<\/p>\n
1. The APR on your primary credit card is \u2026 ?<\/h2>\n
As the Federal Reserve has hiked interest rates to try to tamp down inflation, interest rates on credit cards have soared to all-time highs of more than 20%, making it more expensive than ever to carry a credit-card balance. As of Oct. 11, the average annual percentage rate, or APR, was 20.72%, according to Bankrate.\u00a0<\/p>\n
Alarmingly, many consumers don\u2019t know what the APR is on their primary credit card. Among people who carry a balance from month to month, 43% don\u2019t know what rate they\u2019re paying on that debt, a Bankrate survey this year found. The younger a credit-card user is, the less likely they are to know their card\u2019s rate, Bankrate found, with 50% of Gen Z members in the dark about their card\u2019s rate, compared with 39% of baby boomers.<\/p>\n
2. Creditworthiness can affect your job prospects<\/h2>\n
If you\u2019re applying for a job where you\u2019ll be handling money, or for a role involved with the military or government, there\u2019s a good chance the employer will run a credit check on you, said Christina Roman, a consumer education and advocacy manager at Experian
\n EXPGF,
\n -4.04%<\/bg-quote>.<\/span>
\n The employer will be able to see your payment history, but not your exact credit score. <\/p>\n\u201cThey could want to see it if you\u2019re going to be managing accounts for them, if you\u2019re going to have access to a credit card, or if you\u2019re working in the financial side of the company,\u201d Roman said. \u201cThey want to know that you\u2019re responsible for managing several aspects of your life, including your finances.\u201d<\/p>\n
3. Credit-card debt is often the result of an emergency expense, not chronic overspending<\/h2>\n
Americans\u2019 credit-card debt hit an all-time high of $1.03 trillion in the second quarter. But that milestone isn\u2019t the result of people splurging on tickets to Taylor Swift\u2019s Eras Tour and other \u201cfunflation\u201d spending. <\/p>\n
In fact, 43% of people carrying credit-card debt said their debt was the result of emergency expenses or other unexpected costs, according to an August Bankrate survey. Those include car repairs, medical bills, home repairs and other surprise expenses, according to Bankrate.<\/p>\n
4. It\u2019s OK to check your credit score regularly<\/h2>\n
More than a quarter (27%) of consumers believe checking their credit score will lower it, according to a Capital One survey on misconceptions about credit. That\u2019s not the case, Tayne said: It\u2019s true that when you apply for a loan or a credit card, the creditor will perform a \u201chard\u201d credit inquiry, and that may ding your score by a couple of points. Several hard inquiries within a short period of time can do more damage, she said. <\/p>\n
\u201cHowever, when you check your own credit, it\u2019s known as a \u2018soft\u2019 credit inquiry and has zero impact on your credit,\u201d she added. \u201cYou can check your credit as often as you want with no negative consequences.\u201d<\/p>\n
5. You can get a free credit report once a week now<\/h2>\n
It used to be that consumers could get a free credit report once a year, but the three major credit-reporting bureaus, Equifax, Experian and TransUnion
\n TRU,
\n +3.83%<\/bg-quote>,<\/span>
\n started offering free reports weekly during the pandemic, and recently said they would make that service permanent.<\/p>\n6. You don\u2019t need perfect credit to feel the difference of improved credit<\/h2>\n
Some people like to brag on dating profiles about their impeccable credit scores, but when it comes to building your credit, don\u2019t get too caught up in trying to achieve a perfect score.<\/p>\n
\u201cYou don\u2019t need to strive for perfection,\u201d said Margaret Poe, head of consumer credit education at TransUnion. \u201cOf course, credit is an important part of your financial wellbeing, but you don\u2019t need a perfect score to benefit from good rates and terms on your loans. If you\u2019re looking to improve or rebuild your credit, having goals is smart. Concentrate on incremental progress and shoot for a credit-score range you think is attainable.\u201d\u00a0\u00a0<\/p>\n
So what is a good credit score? Widely used credit-scoring models generally range from 300 to 850, according to TransUnion. A \u201cgood\u201d score is usually in the 721-to-780 range when measured by the Vantage Score 3.0 model, which is what TransUnion uses. VantageScore 3.0 classifies a \u201cvery poor\u201d credit score as 300 to 600, and the 601-to-660 range is considered to be \u201cpoor.\u201d A score between 661 and 720 is considered \u201cfair,\u201d and an \u201cexcellent\u201d score is in the range of 781 to 850. <\/p>\n
The labels that correspond with each score level are more like guidelines than hard-and-fast rules, TransUnion points out.\u00a0<\/p>\n
7. Higher income doesn\u2019t mean a higher credit score<\/h2>\n
You don\u2019t have to make a lot of money to have a beautiful credit score. <\/p>\n
\u201cYour income doesn\u2019t actually impact your score at all,\u201d Tayne said. \u201cWhat matters is how much debt you have in comparison to your income. Known as your \u2018debt-to-income ratio,\u2019 or \u2018DTI\u2019 for short, the more of your monthly gross income that goes toward debt repayment, the worse it is for your credit.\u201d<\/p>\n<\/p><\/div>\n
Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Quick: What\u2019s your credit score, and when was the last time you checked it? Bonus question: What is a good credit score?…<\/p>\n","protected":false},"author":1,"featured_media":3322,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23],"tags":[],"class_list":{"0":"post-3321","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-finance"},"yoast_head":"\n
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