Understanding basic principles of managing your credit and credit score is an essential component to wealth management. Responsible utilization of your credit will cause your credit score to increase. This will give you more purchasing power at much lower interest rates in the eyes of lenders, potentially saving you thousands of dollars long-term.
On May 17, 2023, Dave Herlihy, Senior Vice President of Wealth Management at Slavic401k, presented a webinar teaching the basics of credit scores and proven strategies to increase them. Download the slide deck and watch the webinar recording above.
Credit Score Webinar: Key Takeaways
- Credit is defined as the ability of a consumer to obtain goods and services before payment, based on trust that payment will be made in the future.
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- There are three main credit agencies that monitor your credit score: Equifax, Experian and TransUnion. Each agency is independent from the others, therefore they may not track and report credit scores in the exact same way.
- By law, you are entitled to receive one free credit report per year from all of the major agencies. You can request these reports at AnnualCreditReport.com
- If you notice any discrepancies on your report, dispute them right away and get them corrected.
- In its simplest form, your credit score determines your creditworthiness. It is used as an indicator to landlords, lenders and others of how likely you are to make your payments.
- Your credit score is determined by five factors: payment history (35%), amounts owed (30%), length of credit history (15%), credit mix (10%), and new credit (10%)
- The higher the number, the better your credit score. In general, scores between 300-579 are considered poor, 580-669 average, 670-739 good, 740-799 very good, 800-850 excellent.
- As a best practice, you should aim to keep your overall credit utilization under 30% of your credit capacity.
- You should treat your credit cards like cash and only charge what you have the ability to pay-off each month.
- Do not close old credit cards that don’t have annual fees. Doing so will decrease your length of credit, and therefore negatively effect your credit score.
- Do not apply for too many credit cards at once. Doing so will cause multiple hard pull credit inquiries, which will temporarily lower your credit score.
For more in-depth information on the topics above, as well as real-life money savings examples, watch the webinar recording above.