To be clear, simply monitoring credit will not cause your credit score to improve. It provides support for the activities that do boost your credit score. Before you start, it’s important to understand the difference between your credit history and credit score. Your history is aggregate data related to your borrowing tendencies. In contrast, your credit score is how an algorithm calculates a three-digit number, based on that information. Here’s why you should monitor both.
It Motivates You
No matter what your score currently is, once you sign up for a credit monitoring service, you will feel motivated to earn a better score. Companies often show statistics of how you rank against other people you share demographic data with. Some even show how much house you can afford with your current score and income. These and other tactics will motivate you to continually do everything you can to improve your score.
You Can Gain Practical Information
As you obtain, close and use credit accounts, your score will fluctuate. Monitoring your credit regularly can help you determine what changes have a direct impact on your score. This can help you improve your spending habits and money management skills. You might also get the information you need to complete more long-term planning, such as when to purchase a house or refinance a car loan.
Improve Financial Literacy
Numerous financial professionals have raised concerns that Americans are not as financially literate as they should be. Not everyone has the privilege of being raised in a home where parents make good money and have high credit scores. People who miss out on this, start off a few steps behind in money management. The additional information apps provide when monitoring your credit can provide tools to help you improve your overall financial literacy.
You Can Check for Errors
If you never check your credit report, then you won’t know when there are errors. Note that one in five credit reports contain errors. Not all these errors affect your credit-worthiness, but they are worth looking into all the same. A viral post on social media once related the story of a young man who was consistently denied credit applications but was never told why. One day, he discovered that someone else’s name was showing up on his credit report and that the individual had been reported as deceased.
You Will Spot Fraud Early
Some people only discover fraud and identity theft when an account goes into delinquency or they become arrested for the fraud they did not commit. Some criminals are so effective at stealing and using someone else’s identity that you might be the one struggling to prove that you are who you say you are. When you monitor your credit, you can spot irregularities quickly and take action. Appropriate action might mean reaching out directly to lenders or reporting fraud via legal channels.
You Become Credit Ready
Don’t wait until you’re at the car dealership or already house hunting to determine if you are creditworthy. Ironically, unless you make a high enough income not to need everyday levels of consumer credit, few lenders are willing to overlook low credit scores or non-existent credit history. This is especially true if you are self-employed. Always knowing what your score is and when it changes makes it easy for you to prepare for financial goals ahead.
It’s Almost Effortless
In the past, when people wanted access to their credit scores and credit reports, they had to do a lot of digging. Improving their scores also involved a lot of trial and error. Today, personal finance apps have simplified the process. You sign in, attach your accounts, plug in personal information and they do the rest. When choosing apps, be sure to work with well-known brands, such as your bank, CreditKarma or Nerdwallet.
Get Better Deals
Credit monitoring apps often do not provide just information about your history. These companies make the bulk of their money through affiliate marketing relationships. Simply put, they earn commissions by successfully matching you with better deals on mortgages, car loans, credit cards, insurance and other financial products. These offers tend to be fine-tuned to your financial situation and current credit score, which increases your success rates.
Your Score Might Improve
All of these perks combine to encourage you to grow and maintain a higher credit score. It won’t happen overnight, but with time, you can reach your financial goals. Here are some additional tips that can help:
- Reduce how often you apply for credit to only once or twice per year.
- Keep credit card spending at 10% or less of your limit, per card.
- Ensure you pay all your bills in full and on-time.
- Purchase tradelines to improve the overall appearance of your credit history.
Purchasing tradelines is one of the easiest things you can do to improve your credit score. It will take some time for the change to reflect, but positive growth is almost guaranteed. Complete a Coast Tradelines assessment to see what we can do for you.