Financial Fridays: Master your Credit Report and Score

Do you know what cards are on your credit report?

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Welcome to Financial Fridays #3! Over the next 5 weeks – every Friday from now until the end of 2017 – I’m going to share posts that will help you paint a picture of your financial life today and set you up for a prosperous 2018. We’ll touch on topics ranging from income and expenses to net worth, debt, career advice, and setting goals.

These are some of the steps Kristin and I have taken to help set ourselves up to be able to afford our dream wedding, dream house, and plan for early retirement. Of course, a healthy dose of privilege helps and I’d be remiss to not mention how fortunate we’ve been in that regard.

If you’re looking to make 2018 a better year financially than 2017, tune in every Friday for the rest of the year!

Why Fridays? Each post will have a set of actionable items that could be achieved easily over the course of a weekend!

Did you miss last week’s post? If so, give it a read.

Financial Fridays 3: Master Your Credit Report and Score

You’ve got your income and expenses nailed down by now, right? And your net worth is no longer a mystery thanks to Personal Capital?

Great! This week we’re tackling your credit report and your credit score.

Why is Credit Important?

Credit is important because it’s used as a basis for people to judge you. Sounds harsh, but it’s true. Banks and other financial institutions will use various factors to determine how risky of a customer you’ll be for them.

The less risky you’re perceived to be, the better your terms (ie interest rate) will be on a loan you take out.

If you’re like Kristin and I you pay your cards off in full every month. Our interest rates on those cards, therefore, are meaningless.

But it has a much bigger impact when talking about something like our mortgage. Even a small percentage change can have a huge impact over time. A drop of less than half a percent could save you over $30,000. When our quoted mortgage rate dropped by just 3/8ths of a percent, it trimmed nearly $29k off our total interest payments. That’ll really help pay the mortgage off early.

Credit for Non-Credit Consumers

Even if you aren’t a credit card user and don’t plan on ever getting a loan, knowing what’s on your credit report can be helpful.

Often times various institutions will want to pull your credit to verify your ability to pay in a timely matter. Utility companies frequently do this, or require you to put down a large cash deposit to start service. Landlords do this as well.

If you’re planning on buying a house with a mortgage, having a good credit history makes things easier. There are ways you can get a home loan without a typical credit pull. Manual underwriting can solve this, but it tends to be tedious and most lenders dislike doing it.

What is Your Credit Score?

Quick, answer this question – what’s your credit score? Do you know what it is?

If you don’t at least have a ballpark idea, you have an incomplete picture of your financial life. Going into our mortgage pre-approval process, Kristin and I both knew what our scores were. This helped us feel comfortable getting pre-approved at a couple different potential lenders.

Getting pre-approved for a loan – auto or home loans, typically – can help you negotiate a lower rate. Knowing what your score is can help you avoid a potentially costly mistake.

When I bought my Sonata I had no idea what my credit score was. I went into the dealership and hadn’t gotten pre-approved anywhere else – but I desperately needed a new car.

Unfortunately I walked out with a car loan carrying an interest rate in the low teens. Had I known my score, I’d have taken a lot more time in the weeks up to that point to shop around for a better rate. But since I waited, I screwed myself over a bit.

Today I check my score once a week – honestly most of it is because I’m curious when our mortgage will finally show up and how much it’ll drop as a result. I use a couple services, including one through my bank.

My preferred method of checking, however, is Credit Sesame. I’ve got a more in-depth explanation of what impacts your credit, as well as a brief review of Credit Sesame if you care to read here.

The signup process is simple, I get a weekly update of my score, and I can see the things that are influencing my score. Tracking it over time is fun, too. Maybe I’ll poll my Twitter followers on how much my score will drop once the mortgage hits…

Action: Sign up for Credit Sesame to see your score.

Ignorance Is Not Bliss – Get Your Credit Report, too

Even if you don’t use credit, it’s possible that someone has opened a line of credit in your name.

I remember when I was in London, one of my friends who I met there was the victim of identity theft. While we were studying in London, someone got a mortgage using his name and social security number.

If you don’t check your credit report, things like this can happen without you knowing. If that person defaulted on the loan, guess who they’d come after?

Don’t potentially over-complicate your life out of ignorance! Knowing what’s on your credit report is important whether you use credit or not.

Action: Get your Annual Credit Report from AnnualCreditReport.com. Ensure that all the items listed on it are accurate.

It’s easy to monitor these things. Sign up for Credit Sesame and you’ll get emailed any time something changes. Monitoring your credit is simple and helpful, regardless of your stance on using debt or not.

Question:

Do you actively monitor your credit?

Bonus Question:

What should I add to this Financial Friday post to help round it out? Any recommendations on future posts, or things I could expand on, omit, etc.? Do you like the format? I’m looking for feedback!

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10 Comments

  1. We check our credit reports annually and check our credit score a few times each year using our credit card apps (so many credit cards now offer this).

    In five years of tracking we did find one major error, and we were able to get it fixed before we applied for our mortgage.

    And BTW, I like the new series!

    1. Thanks Mrs Kiwi! Yeah it’s great that so many cards offer this now. My AMEX does, and CapOne360 does as well. I like to have a few sources (I use Credit Sesame and Credit Karma, for example, in addition to the other sources) and see how close/far off they are. Typically they’re pretty close – a few points most.

      Good that you found that major error before you had to deal with a mortgage!!

      Thanks for stopping by!

  2. Hey Dave! I used to actively manage my credit, but haven’t as much lately. I’ve taken a hit for credit card churning. Normally I’d be over 800 but the churn keeps me around 750 or so. I think the main thing is to have as much credit history as possible, and a good utilization ratio.

    1. Yeah churning will do that. 750 is still really good!! I’ve definitely noticed utilization ratio impacting the volatility of my score more, but history is still a pretty significant one. 🙂

  3. Dave,
    Yeah, credit is very important. Having a good credit saves money on a lot of things like mortgage, car insurance, car loan, etc. I heard some employers do check credit history when hiring. The annual credit report is good, and free, too. Just make sure nobody messes up your credit.

  4. I admit I don’t know my credit score. The last time I learned of my credit score was when I got my mortgage (which was over 5 years ago I think). I always thought you get dinged for finding out the credit score. I keep on churning cards too lol.

    1. A PF blogger who doesn’t know their credit score?!

      You don’t get dinged for checking your own! That’s called a ‘soft inquiry’ (vs. a ‘hard inquiry’ like a CC company would have). You can check yours any time, no impact at all to your score! You should check your score on Credit Sesame (bonus points for using my affiliate link above haha)

  5. Sometimes employers will also check your credit score before hiring you especially if you work in Finance/Accounting. For example, this guy I used to go to school with has not been able to secure a good job because he has bad credit, and without a decent job he can’t fix his credit…and the cycle continues…

    99to1percent recently posted…What BS Are You On? https://99to1percent.com/what-bs-are-you-on/

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