3 Ways to Come Out a Winner on Your Credit Scorecard

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3 Ways to Come Out a Winner on Your Credit Scorecard


The NBA Finals are well under way, and for the second year in a row, the Golden State Warriors are battling the Cleveland Cavaliers. After a history-making season of 73 wins, the Warriors are seeking to clinch the NBA Championship to round out their close-to-perfect year.

Winning the NBA Championship involves exercising some basic principles of the game -- and doing them well. Developing a good credit score isn't actually all that different. By applying these three simple principles of basketball to your credit, you could be on your way to coming out a winner on your credit scorecard.

1. Know how to score.

In basketball, to win you have to score points, and to score points, you have to know how to make baskets.

Similarly, to win at your credit scorecard, it can help to know how your credit score is determined.

There are a number of factors that typically go into your credit score, and once you're familiar with them, you can work on improving the areas that need work. So what's in a credit score? Here are six common factors and some tips on how to improve them:

  • Credit card utilization: This refers to your total credit card balances as a percentage of your total credit card limits. Try to keep this number low, as a higher rate could indicate that you're desperate for credit, and your score could take a hit as a result.

    A general recommendation is to try to keep your utilization rate under 30 percent.

  • Payment history: By making your credit card, mortgage and loan payments on time, you're sending the signal that you're more likely to be a reliable borrower, which could help your credit score. Setting up automatic billing may be a simple way to help ensure you get your payments in on time.

  • Derogatory marks: Derogatory marks may include accounts in collections, bankruptcies, foreclosures and liens. Just one derogatory mark can severely affect your credit score for the worse, so it's best to try to avoid getting one by staying on top of your bills.

  • Age of credit history: Some models base this factor on the average age of your open accounts (credit cards, mortgages, auto loans, student loans and other lines of credit) -- this is what you see on Credit Karma -- while others look at both open and closed accounts or just your oldest account.

    The lengthier your credit history, the more information lenders have to determine your creditworthiness, so consider carefully before deciding to close an account.

  • Total accounts: This refers to the number of credit cards, loans, mortgages and other lines of credit that you have. Typically, consumers with more accounts tend to have better credit scores, though it's generally not a good idea to open several new lines of credit just so you can have more accounts open. Instead, make sure that you're selecting products that are a good fit for you.

  • Credit inquiries: Hard inquiries usually occur when a financial institution or other company or person who needs to know your creditworthiness checks your credit report. They commonly take place when you apply for a loan, credit card or mortgage, but can also take place when, for example, you go to rent an apartment.

    As hard inquiries can slightly lower your credit score, try to limit the number of hard inquiries you get by restricting how often you apply for credit and shopping around for loans within a short period of time. It's important to note that hard inquiries are different from soft inquiries, which don't affect your credit score.

2. Learn from your coach.

Just as great players are essential to a championship NBA team, so is a great coach. A coach can play an instrumental role in educating the players, helping them overcome their weaknesses and developing their strengths.

Coaching can also play a key role in building a strong credit scorecard. You don't have to be a credit expert to build great credit -- there are lots of educational resources out there that can help guide you.

Here are a few suggestions to help you get started:

  • The Consumer Financial Protection Bureau provides easy-to-understand answers to hundreds of financial questions, as well as webinars and articles on a range of money and financial issues.

  • 360degrees of Financial Literacy is a free public service provided by the American Institute of CPAs that offers tailored tools and articles for consumers, depending on their financial literacy and stage of life.

  • MakingCents, a website catered toward millennials, "takes its users on a step-by-step journey through their selected financial track -- [for example] buying a car or home, or opening a first credit card," says Meghan Gound, Navy Federal Credit Union assistant vice president of digital communications. Available to both military and non-military personnel, "the site seeks to take the complexities and jargon out of the process," she explains.

Finally, our Credit Karma articles section also provides easy-to-understand information on a range of credit and finance topics.

3. Don't go at it alone -- rely on your team.

Basketball is a team game, and winning a championship means players have to work effectively with their teammates. One player -- even the MVP -- can't win on his own.

While you're responsible for your own credit, you don't have to do it all on your own. Unlike in basketball, though, your teammates don't have to be other people; instead, you can rely on a "team" of helpful tools that can help you cover your ground.

Credit Karma provides you with a look at your credit scorecard so you can know where your credit stands.

When you log into your account, you can view your VantageScore 3.0 credit scores as reported by TransUnion and Equifax, two of the the three major credit bureaus. You can also see where you stand in each of the main credit factors we mentioned earlier, as well as learn ways to improve them.

For a more complete picture, you can check out your full credit reports, where you can see your personal information, accounts, credit inquiries, public records and collections and make sure that these items are correct. (If they're not, consider disputing errors.) Credit Karma also flags items from your credit reports for you to review that may deserve your attention.

We also provide recommendations on financial products that could be a good fit for you based on your credit situation.

In addition, you can use Credit Karma to track your spending, see your cash flow over time, identify where your money is being spent by category and review your transactions.

Finally, you can use our Credit Score Simulator to explore how your score might change if you make various financial choices, such as opening a new credit card or changing your payment habits.

Taking Home the Win

You may not have a national championship to look forward to, but working on your credit can really pay off.

Over the course of your lifetime, you could potentially save $60,000 in interest if you maintained an excellent (750-850) score rather than a good (700-749) one, and over $200,000 than if you had one that needs work (300-639).

Championship basketball is reserved for the elite athletes, but developing a great credit score can be for everyone. By following these three tips, you can also come out a winner.

About the Author: Mika Bhatia is a Staff Writer for Credit Karma. She's worked in financial services and tech, and has now found the perfect union of the two at Credit Karma. When she's not busy coming up with credit-related analogies, she's most likely supporting the Warriors, enjoying a fine cup of British tea or doing yoga (goal: completing a headstand without toppling over).

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