She Strengthens

Unlocking the Secrets of a High Credit Score

Your credit score is a crucial aspect of your financial health, influencing everything from job opportunities to mortgage approvals. However, building a strong credit score can be a daunting task, especially with the abundance of misinformation circulating online. To shed light on this complex topic, we spoke with credit card expert and consumer advocate Beverly Harzog, who shared her insights on the often-overlooked factors that impact your credit score.

Understanding the Factors that Influence Your Score

Before you can improve your credit score, it’s essential to grasp the five main factors that contribute to its calculation: payment history, credit utilization, length of credit history, new credit, and mix of credit. Harzog emphasizes the importance of understanding each category and how they interact with one another. “New credit is fine, but you don’t want to have too many [new accounts]. You lose a few points every time you apply for new credit, and it also looks like you’re desperate if you’ve got too many accounts open, and that can cause problems for you.”

The Power of Credit Utilization

Your credit utilization rate plays a significant role in determining your credit score. While the general guideline is to keep it under 30%, Harzog suggests that aiming for an even lower rate can be beneficial. “The gold standard is 30%. If you’ve got a great credit score, 30% is fine. But if you really want it at the top — the people who have scores around 800, their utilization rate is usually around 10%.” However, there may be situations where a higher utilization rate is unavoidable, such as when using rewards cards strategically.

The Impact of Hard Credit Inquiries

Every time you apply for a new credit card or account, your credit undergoes a hard inquiry, which can knock off 2-5 points from your FICO score. Harzog advises caution when opening new accounts, as excessive inquiries can raise red flags with credit bureaus. “You might be just on the cusp of a great score, but maybe you’ve got so many inquiries that you can’t get there…”

Monitoring Your Credit Score and Report

Unlike applying for credit, checking your own credit score doesn’t involve a hard credit pull. Harzog recommends regularly reviewing your credit report and score to ensure everything is in order, especially in the wake of the Equifax breach. You can request a free credit report from each bureau every 12 months.

Protecting Yourself from Identity Theft

If you’re a victim of identity theft, your credit report becomes crucial. Harzog suggests obtaining a free credit report from one of the bureaus every four months to stay on top of potential errors. Additionally, regularly check your accounts online and report any suspicious activity promptly.

Debunking Credit Score Myths

One common misconception is that carrying a credit card balance is necessary to improve your credit score. Harzog dispels this myth, stating that payment history is reported regardless of balance. “Your payment history is reported. If you paid on time and your balance is $0, it’s going to get recorded that you paid that.”

Choosing the Right Credit Card

If you’re applying for your first credit card, it’s essential to understand your credit history and choose the right type of card. Harzog recommends checking your credit report and considering secured credit cards if you have poor or no credit. “Discover has a great secured credit card, which is usually one I recommend — no annual fee, and you can get rewards through them.”

Not Everyone Needs a Credit Card

Harzog emphasizes that credit cards aren’t suitable for everyone, particularly those who struggle with responsible spending. However, for most people, using a credit card responsibly can help boost their credit score and unlock benefits like lower insurance rates.

Alternative Options for Improving Your Credit Score

While credit cards can be beneficial, they’re not the only way to improve your credit score. Harzog suggests considering credit builder loans at banks, which involve making installment payments on a loan. This option can provide an alternative path to building credit without the pressure of a credit card bill.

By understanding these often-overlooked factors and myths surrounding credit scores, you can take control of your financial health and make informed decisions to secure a brighter financial future.