Most people know that you should strive to have a good credit score, but what does that mean exactly?
Personal finance expert Barry Choi joined Bob Cowan on Morning Live to explain everything you need to know about being savvy with your credit.
What is a credit score?
A credit score is a number that businesses use to predict how likely it is that you will pay your bills on time. It is typically a three-digit number between 300 and 900.
Choi said the higher your credit score is, the better.
“This is important because lenders, such as banks or credit providers, may use your credit score as a quick reference,” he said. “If you ever want a loan in the future, having a good credit score can help you get approved for lower interest rates.”
Does applying for a credit card affect your credit score?
Choi said whenever you apply for a new credit card, your credit score can decrease by five to 10 points, regardless of whether you are approved or not.
“This is referred to as a ‘credit hit,’ but not all hits have a negative impact,” he said.
For example, Quick Check by Capital One is an exclusive feature that allows you to see which of their credit cards you will be approved for before you apply, without taking a credit hit, and it takes as little as 15 seconds for a response.
What are some ways to improve or maintain your credit score?
There are a number of ways you can improve and maintain an optimal credit score, Choi said.
The first tip is to use a credit card as often as you can, as long as you are responsible. He said this will help you to build your credit score.
Another strategy is to make payments on time and to pay more than the minimum payment.
Choi also suggested to avoid maxing out your credit card limits: “Not only can it get you into debt, but it can also affect your mental health.”
The final way to improve and maintain your credit score is to avoid completing too many applications for a new credit card.
How often should people check their credit scores?
While you can check your credit score any time, Choi recommended reviewing it once a week or month to avoid unnecessary stress since your credit score won’t change daily.
“It’s not just the increases you’re looking for, but you also want to see if there are any sudden unexplained drops in your credit score,” he said. “If there are unexplained drops, it’s important to investigate them further by contacting the credit bureaus to find out why.”
