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Pursuit of Your Best Self – Tip #3

Pursuit of Your Best Self – Tip #3

November 30, 2023

Do you know you can request a copy of your credit report from all three credit reporting agencies every 12 months for free? You don’t want to request it any more than once every 12 months because if you do, it will negatively affect your credit score. I personally request mine every 12-18 months. Unless you have a lot of credit cards or outstanding loans, every 12-18 months should be fine. Though, if you do have those credit cards or loans, then that's something we should definitely address.

 

Tip #3 Request Copies of Your Credit Report from the 3 Credit Bureaus (Equifax, TransUnion, Experian) 

 

When you receive your credit report, compare the financial information you have to what is showing on the credit report. If there are any discrepancies, take note and do your research. It can be quite time consuming but well worth it to clean up your credit

The two most significant factors on your credit report that affect your credit score

  • length of time you have had a credit card or loan open
  • credit utilization

A good rule of thumb is that you want a lengthy credit history, so don’t close out that card that you have had since college. Your credit length is determined by the average age of your accounts. To find your average age of accounts, add the age of each credit card or loan account in years together and divide that number by the number of accounts you have.

To use an example, if you have one credit card that's 2 years old and another that's 4 years old, your average age of accounts would be 3 years. (2+4 = 6. Then 6 divided by the number of accounts (2) equals 3.) The older each account is, the higher your average age of accounts will be, so it's best not to close older accounts so that they can benefit your credit score!

Another good rule to follow is to keep your credit utilization at 30% or below. I know this requires a little bit of math, but you can do it. Credit utilization is the total outstanding balance you have divided by your credit limit (or availability).

For example, assume you have one credit card with a credit line of $5,000 and a balance of $1,000. You divide $1,000 by $5,000 to get your credit utilization. In this case it is 20%. (1,000/5,000 = .2 To turn that into a percent value, multiply .2 by 100 to get 20%). This credit utilization is within the ideal range of below 30%.

For another example, assume you have one credit card with a credit line of $5,000 and a balance of $3,500. You divide $3,500 by $5,000 to get your credit utilization. In this case, it is 70%. (3,500/5,000 = .7 Next multiply .7 x 100 to get the percent value of 70%). This credit utilization is NOT within the ideal range of below 30%. 

Credit utilization takes into account all the credit cards you have, so let's look at total credit utilization for one final example. Assume you have:

Credit Card 1: Credit line: $5,000, Balance $1,000

Credit Card 2: Credit line: $9,000, Balance $3,000

To calculate your credit utilization, you add the balance of each card ($1,000 + $3,000 = $4,000) then divide that by the total credit line of the two cards ($5,000 + $9,000 = $14,000). In this case, the credit utilization is 28.6% (4,000/14,000 = .2857. Next multiply by 100 and round up to get the percent value of 28.6%). This credit utilization is within the ideal range of below 30%.

Pursuing Your Best Self

This tip comes from my book, Unforeseen Exit: When You Find Yourself Facing Divorce & Suddenly Single, where I tell my story of navigating an unforeseen divorce. By openly telling my story, I want to provide guidance and support to women who have found themselves in similar circumstances, so they can pursue their best self personally and financially! 

For more information on requesting credit reports, what your credit report can tell you, or understanding how your credit score can impact your financial strategies, schedule a discovery meeting with Keli today!