Millennial Money: How to take charge of your credit in 2020

Brushing up on the basics of your credit score can give you a fresh start this year and help you know how best to build and defend it.

By now, you’ve encountered the world of credit, whether it was renting your first apartment or figuring out how to pay for a kitchen remodel.

Whatever your financial goals this year, your credit is likely to play a role in achieving them. Take a fresh approach to your credit by brushing up on the basics: What really matters for your credit score? What’s the difference between a credit score and credit report? Once you’ve revisited the basics, sit back and enjoy the perks of good credit: a shot at rewards credit cards, lower mortgage or car loan rates and more.

Here’s your crash course on credit, and tips to make your score shine.

How many credit scores do I have?

The short answer: Many.

There are two major credit-scoring companies: FICO and VantageScore. “Both take into account the same factors, they just have a different way of weighting them and creating a score,” says Tasha Bishop, director of digital innovation and development at Apprisen, a nonprofit credit counseling agency in Columbus, Ohio.

FICO and VantageScore make different versions of scores that lenders, employers and landlords use to size up your credit habits. The phrase “your FICO score” refers to FICO 8, the version typically used in lending decisions. If you’ve used a free credit score service or seen a free score through your bank, it’s likely the VantageScore 3.0. Both scores range between 300 and 850.

Lenders decide which version of your score to use.

“If you go to a car dealership, they might pull a score that’s different from when you apply for a mortgage or when you sign up for a cellphone,” says Daniel Stous, a certified financial planner at Flagstone Financial Management in Lincoln, Nebraska.

Mortgage lenders generally consider older versions of your FICO score, while auto lenders look at an auto-specific FICO score that ranges from 250 to 900.

When you’re tracking your score, look at the same version each time — otherwise, you’re comparing apples and oranges.

What really matters for your score?

Following two rules puts you on the path to a good score: Pay bills on time and use less than 30% of your credit card limits — the lower, the better.

“Lenders want to know that you make your payments and make them on time,” Bishop says. This has the biggest impact on your scores.

Next, look at how much you charge on credit cards each month relative to your credit limits. This factor, known as your credit utilization ratio, “compares how much of your credit you have available compared to how much credit you are using,” Bishop says.

Other factors, such as how long you’ve had credit, the mix of installment loans and credit cards you have and how recently you applied for credit matter much less in your scores.

What doesn’t affect my score?

Knowing what doesn’t affect your score will spare you from needless worry. For example, checking your own credit score never hurts it, whether you do it once a day or once a year.

Stous says people often think utility payments help their scores, but with most scores, they don’t. These payments can only hurt them if you are over 30 days late on a payment. Then, the bill may be charged off or sent to a collector, who can report it to the credit bureaus.

Another common misconception — especially among millennials — is that having many credit cards is bad for your score, Stous says. As long as you keep your credit utilization low and space out applications, having a number of cards isn’t bad, he says.

What’s the difference between a credit score and a credit report?

“The credit report is the detailed history of how you borrowed money,” Bishop says.

You have three: one each from Experian, Equifax and TransUnion, the major credit bureaus. Your credit reports contain loan and credit card payment records, personal data to identify you, addresses and information from public records such as bankruptcies and foreclosures. While it may seem strange, credit reports don’t include your credit score.

FICO and VantageScore use data from your reports to calculate scores. Errors on your reports can hurt your scores, so disputing them with the bureaus is a smart move. You’re entitled to at least one free copy of each report annually, which you can get by going to AnnualCreditReport.com.

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