Understanding what impacts your credit can give you the tools you need to improve it. (iStock)
A good credit score is crucial to building a healthy financial foundation for your life. Not only does it make it easier to qualify for credit when you need it, but it also gives you a better chance of scoring lower interest rates and even insurance premiums.
In many cases, it can also give you an advantage over other candidates for certain jobs and residential rentals. One of the best ways to boost your credit score is to monitor it. Here's how using a good credit monitoring service can help:
- It shows you which factors impact your credit score
- It helps you spot issues early on
- It lets you know about fraud and errors
- It has some features that can work in your favor
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1. It shows you which factors impact your credit score
There are five different factors that influence your FICO credit score:
- Payment history
- Amounts owed
- Length of credit history
- Credit mix
- New credit
As you manage your credit over time, you'll be able to see how your efforts in each of these areas impact your credit score for better or worse. For example, if you rack up a high credit card balance one month — even if you pay the bill in full by the due date — your score may dip. This tells you to try to keep your card balances low going forward to maintain a higher score.
You can better understand how each factor impacts your score through credit monitoring with Credible's partner Experian.
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2. It helps you spot issues early on
It can be challenging to stay on top of all your bills and accounts. And it's possible you could end up with a negative item on your credit report due to an honest mistake. For example, maybe you spaced on making a payment or you forgot about a negative bank account balance and it's been sent to collections.
When you check your credit reports regularly, you can spot these issues as soon as they get added to your reports. In some cases, you may be able to get the item removed if you contact the lender or collection agency, explain your situation and make an immediate payment.
Even if you can't get it removed, you can stop the situation from getting worse. With Experian credit monitoring, you'll be able to get real-time alerts when your credit report changes. Learn more through Credible.
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3. It lets you know about fraud and errors
In addition to legitimate negative items, credit monitoring can also apprise you of potentially inaccurate or even fraudulent information. The sooner you spot and address it, the easier it will be to dispute it and have it removed.
4. It has some features that can work in your favor
Some credit monitoring services offer additional features that can help improve your credit. With Experian Boost, for instance, you can have your on-time payments on utility, phone and even streaming services be added to your Experian credit file.
Simply connect your financial accounts and Experian will identify the payments to add. They don't add late payments, so you don't have to worry about it lowering your credit score. According to the credit bureau, the average FICO score increase for people using the program is 12 points.
You can learn more about and sign up for Experian Boost through its partner, Credible.
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Use credit monitoring to improve your financial situation
Monitoring your credit doesn't take a lot of time. In some cases, the service will even send you updates so you don't have to log in every day or week. But the small effort of checking your credit score and reports on the regular can make a huge impact on your financial plan.
Over time, monitoring your credit can help you understand how your actions impact your credit score and which steps you can take to address issues as they arise. It will also help you maintain your good credit once you've established it.
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Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.
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