Why Does Credit Matter?

Having good credit is critical for a secure financial foundation. In the most direct use, credit allows you to purchase a home and take out loans. However, your credit score and other metrics about your credit can be used for many indirect applications as well. For example, your credit score can be used to determine your insurance score, provide background to your employer during a job application or even establish your identity. There are also other applications of credit and your credit score that really help enable you to pull some of the best levers in your financial toolbelt. For these reasons, understanding and improving your credit is a key skill you need to have.

What is a Credit Report?

There are three main credit bureaus that collect information about your credit. They are Experian, Equifax and Trans-Union. Each bureau may have slightly different profile for you and may contain slightly different information because not all companies report to all three of the bureaus. The credit bureaus will often aggregate the information in your profile into a score to try and represent how "worthy" you are to have credit. Not all scores are equal, nor are they used interchangeably. For example, the mortgage industry uses a FICO score, others use a Vantage score, and the credit bureau may have its own kind of score as well. Most scored range from 300-850 and the higher the score the better your credit. Generally you should target a score of at least 730 to have access to the best rates and benefits.

Where Do I Start?

One of the best ways to begin is to understand where you are starting from and what your credit is like today. There are a few ways that you can do this, and the best news is that they are totally free!

Credit Karma

CreditKarma.com is a great tool for monitoring your credit score and your credit report. There is no cost to use the tool and signup takes just a few minutes. Once you are logged in you will be able to access your TransUnion and Equifax score. By accessing the score details you can also see what factors affect your score including:

• Payment History

• Credit Age

• Total Number of Accounts

• Hard Inquiries

• Utilization

• Derogatory Marks

With this information you can start to understand where you can improve your score.

Annual Credit Report

Everyone is able to access their full credit report from each credit bureau once every year. To access this credit report you can visit www.annualcreditreport.com. You will need to choose a particular bureau to get your report from, and then you will have access to the full details of what is listed in your report. If this is your first time accessing the reports, it might make sense to go ahead and access all three reports right away. That way you can get a better understanding of where you are starting off at.

Identity Theft

Your credit report is one of the first insights and defenses against identify theft. Monitoring your credit continually with a tool like Credit Karma is key to making sure that no one is using your credit or opening accounts without your knowledge. Identity theft is becoming more and more common. Experian estimates that 1 in 20 Americans will have some sort of identify theft each year. If you do find

Having Your Own Credit

Every person has their own credit score, and its important that you understand and consider the credit for everyone in your household. First and foremost its important for security purposes to make sure that no one in your household is a victim of identify theft. You should even check reports for children, especially youth 16 and older that are preparing for adulthood. Secondly its important to have your own credit so that you are not reliant on some one else's. Death, separation or the main credit user in your house is not able to use their credit, can all have significant impacts on you financially and emotionally. When both you and your significant other have great credit there are many options and levers that can open up for you.

Next Steps:

In summary, getting your credit in order is not only a good idea, but it can save you a lot of money and time. For your next steps consider:

1. Opening an account with Credit Karma to monitor your own credit.

2. Look at each of your credit reports using www.annualcreditreport.com.

3. Take steps towards improving your credit by opening more accounts, decreasing utilization, or updating credit history to be accurate.