Get credit wise: 5 smart decisions to help protect your finances and credit

Man looking at his laptop and making good credit decisions Man looking at his laptop and making good credit decisions Image:

In a Nutshell

You may be able to improve your credit health by making smart credit decisions like checking your reports regularly, disputing errors and setting up autopay on your accounts.

We generally make money when you get a product (like a credit card or loan) through our platform, but we don’t let that cloud our editorial opinions. Learn more about how we keep this compensation from affecting our editorial views.
Advertiser Disclosure

We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

Socrates once said: “The only true wisdom is knowing you know nothing.” But Socrates obviously didn’t have a credit score. Here are five credit-wise decisions you can start making today to help protect your finances and your credit.

  1. Check your credit reports regularly.
  2. Found a credit report error? Dispute it.
  3. Set up autopay.
  4. When possible, pay your credit cards in full.
  5. Ask and you may receive.

1. Check your credit reports regularly.

Financial advisors and consumer advocates recommend that you check your credit reports periodically — whether it’s once a year or more frequently. You can check your report for free once every 12 months from the three national credit bureaus: Equifax, Experian and TransUnion.

You can also see your TransUnion and Equifax credit scores and reports for free at any time through Credit Karma.

Why is it important to check your credit reports? First, doing so can help you remember to keep your information (such as your address) up to date. It’s also an important protection against identity theft.

By reviewing the items on your report regularly, you can see if someone has used your identity, such as your Social Security number, to open accounts in your name — and take action if necessary.

Check your credit now

2. Found a credit report error? Dispute it.

A 2012 Federal Trade Commission (FTC) report found that one in four Americans have at least one potentially significant error on their credit report. Errors may include a fraudulent account, incorrect credit limit or a late payment that’s more than seven years old.

Why are these errors potentially significant? An account-related error, such as a late payment that should have dropped off your report, can affect your credit score. If your report lists a wrong address, that typically won’t affect your score, but it could alert you to fraud or another reporting issue.

You can dispute errors with each credit bureau through their websites. If you’re a Credit Karma member, you can also use our Direct Dispute™ tool to dispute errors on your TransUnion credit report.

3. Set up autopay.

Do you regularly use multiple credit cards? If they all have different due dates throughout the month, you may run the risk of forgetting to make a payment on time.

This can have serious consequences — late payments can lead to you having to pay a late fee of as much as $25 to $35, possible increased interest rates on new purchases and, if reported by your creditor, it can stay on your credit report for seven years.

One credit-wise way to avoid this is by calling your lender and asking them to set your due dates on the same date every month (perhaps a day or two after you get paid) and set up autopay for the new date. Your lender may agree to change the due date, though they aren’t required to do so.

If you go down this route, make sure you have enough funds in the linked accounts to pay your bills so that your account isn’t overdrawn.

4. When possible, pay your credit cards in full.

Just like itchy palms don’t mean you’re going to come into money (sadly), carrying a balance isn’t necessary to build credit.

In fact, carrying a balance could be harmful for your credit because it can raise your credit card utilization rate, which is typically an important factor in your credit score. There’s no firm guideline on how much of your credit you should use, but a credit-wise rule of thumb is to try to use less than 30 percent of your available credit across all accounts.

When possible, pay your cards off on time and in full. Carrying a balance isn’t just potentially harmful for your score — it can also cost you in interest, which can add up quickly. According to our data, as of January 2016, the average credit card APR for someone with good credit was 17.44 percent.

5. Ask and you may receive.

If you’re in good standing with your credit card provider and have a history of on-time payments, you may be able to ask for a number of things that may improve your credit health:

  • A higher credit limit: A higher limit could lower your overall credit utilization rate, which can help your credit health. So, for example, if your credit limit is $10,000 and you’re using $4,000 of it, your utilization rate is 40 percent. However, if your provider grants your request, raises your limit to $12,000 and your spending remains the same, your utilization rate would drop to 33 percent. Just be careful and avoid temptation to use the new credit limit.
  • A lower interest rate: If your credit score has improved or your income has increased since you initially got your credit card, your provider may be willing to lower your interest rate. There’s no guarantee of success, but according to a 2014 survey, nearly two out of three credit card holders who requested a lower rate from their bank reported getting a rate reduction.
  • A late payment fee reversal: Is it your first time missing a credit card payment? If you have a good payment history and make a full payment immediately, you may be able to ask your bank to forgive the fee and not report the late payment to the credit bureaus. However, this is at your provider’s discretion.

Bottom line

Becoming credit wise is similar to gaining any type of wisdom in life — it requires time, education and taking action. By making these five credit-wise decisions, you may be able to improve your credit health and keep your finances in good stead.

Editorial Note: The opinions you read here come from our editorial team. While compensation may affect which companies we write about and products we review, our marketing partners don't review, approve or endorse our editorial content. Our content is accurate (to the best of our knowledge) when we initially post it, but we don't guarantee the accuracy or completeness of the information provided. You can visit the company's website to get complete details about a product. See an error in an article? Use this form to report it to our editorial team. For questions about your Credit Karma account, please submit a help request to our support team.