To Her Credit offers targeted advice about personal finance based on unique challenges faced by women. It is authored by women with different financial backgrounds, dedicated to encouraging empowerment through financial literacy.
With the additional financial challenges and hurdles that come with being a woman, it is important to create a solid foundation in order to achieve financial empowerment. Overcoming obstacles is difficult – even more so when you don’t know where to start.
The best first step is to understand the importance of credit and how it affects the many facets of your life. By understanding your credit score, you can begin to remedy any money mistakes you’ve made in the past and work toward a more successful financial future.
Understanding the importance of credit
What makes up your credit score? It’s more than just how many accounts you have (or don’t have) open:
- 35 percent – Your history of making credit payments on time.
- 30 percent – The total amount of debt being carried along with available credit.
- 15 percent – The average age of your open credit lines (the lengthier the history, the better).
- 10 percent – The frequency with which you apply for new credit.
- 10 percent – Your credit mix, or the different types of accounts you have.
Once you begin to grasp how your score is broken down, you can start making smarter credit decisions. But now the question remains: Have you checked your score recently?
See related: Financial advice: One size doesn’t fit all
Check your score and report
According to a February 2018 CreditCards.com poll, 50 percent of Americans had not checked their credit score in the past six months. Young adults were the biggest culprits, with 27 percent of respondents aged 18-37 claiming they had never checked their credit reports or scores, including 36 percent of those 30 and younger.
Unfortunately, women are often starting at a disadvantage – with a lower average credit limit, which can result in a higher credit utilization ratio. This can lead to a lower credit score, which makes it even more important to know where you stand.
“Your credit score is the most important number in your financial life,” says Ted Rossman, industry analyst for CreditCards.com. “It affects whether or not you get approved for credit cards, car loans, mortgages and other financial products.”
“By checking your credit report regularly [you can do it for free at AnnualCreditReport.com], you can catch problems early. You get one report for free each year from each of the three major credit bureaus, so I suggest spreading them out and checking one every four months,” says Rossman.
It may seem daunting or unimportant, but knowledge is power and checking your credit score and report can be that first step in a long line of successes.
See related: Empowerment through financial literacy
Upsets and upheavals
Once you understand the basics of a credit score and how it works, you’ll be better suited to handle the many challenges that can shake your financial stability.
Numerous factors can impede financial independence – such as reliance on a spouse or family member. If you aren’t knowledgeable about credit scores, circumstances such as divorce or death of a loved one can take a heavier toll as a result. If you are suddenly thrust from a comfortable situation and forced to take a more hands-on role in your financial well-being, change can be even more intimidating.
In other cases, you may be starting behind due to a generational lack of knowledge. Conversely, you might have taken a step back and let a spouse or family member take the reins. No matter the case, it is important to consider the financial stresses life events can evoke – and make the decision to embrace financial independence before it happens.
We’re better at credit – we just don’t know it
Contrary to what you may have heard, women are better than men at many aspects concerning finance. We have a lower card delinquency rate and we carry less card debt.
According to a Consumer Federation of America and VantageScore poll, we also know more about what it takes to raise a low credit score, we’re more likely to have obtained a credit report in the last year and more women than men understand the importance of checking their credit reports for accuracy.
Yet, 61 percent of men said they considered their credit score knowledge to be good or excellent while only 54 percent of women said the same.
Being confident in your financial independence is just as important as being knowledgeable, as it empowers you to make necessary decisions. Just like we shouldn’t be afraid to admit what we don’t know, we shouldn’t be afraid to proclaim what we do.
How to get up to speed
Whatever the reason, it’s never too late to start working on your financial freedom. Maybe you already have a copy of your credit report and know your score, so what’s next?
1. Set financial goals
These goals need to be measurable and realistic. It’s OK to start small; for example, if you can save $20 a month, do it. Only made a $40 payment on your credit card? That’s OK! These goals are for you, so don’t let the big picture hinder these smaller celebrations. Start by writing out your goals and breaking down expenses into the “big 4” categories. Take advantage of budgeting apps, as well.
2. Build your credit score
Building up your credit score is going to take time, but that shouldn’t discourage you – especially since you’re not alone.
“FICO says 79 million Americans have subprime credit [scores of 680 or below] and 53 million can’t even be scored because of lack of information, so that’s about half of U.S. adults who have poor credit or no credit,” says Rossman.
Be methodical in your decisions – if you think it’s best to hold off on applying for a new credit card, then stick to it. Don’t close any accounts as this will only hurt your score – unless you’re paying annual fees for a card that offers you little in return. Focus on bringing them up to date and learn to slay your debt with small wins.
3. Look into alternative data
Alternative data has been an option for quite some time but has recently gained more traction with programs like Experian Boost and UltraFICO coming to light. Both are designed to help consumers with thin credit files and credit scores below 680.
Another alternative data option is to add rent payments to your credit report. Find out if your landlord reports your rent payments to any credit bureaus, or at least gives the option for tenants to opt-in. If not, you can self-report, but for a fee. Several third-party companies like RentTrack and Rental Kharma will report your payments on your behalf. The fees vary depending on which company you use and can be as high as $9.95 a month. However, the fees may be worth it if it allows you to boost your score.
4. Make on-time payments
Life happens. But it’s important to not let the slip-ups keep you down. Paying back your credit card and loan balances on time is the most important factor in your credit score. Set up payment reminders to avoid a ding on your credit report and always save proof of payment.
“If you’ve slipped up in the past and paid late, ask the lender for a break,” says Rossman. “Request that they take the negative mark off your credit report. This works best if it was an isolated mistake … and usually works best in writing (send a certified letter to the customer service department). You could also try calling customer service to request a goodwill deletion.”
5. Become an authorized user
Becoming an authorized user requires a lot of trust – from both parties. If you are going to share a card, you have to use it consistently; if no one is charging, there will be nothing to report. Make payments on time and keep the balance at zero or very low.
Want the perks without the added responsibility? Become an authorized user, but don’t share a card. This requires extra reliance on the primary account holder, so make sure to choose wisely.
6. Don’t dismiss your progress
It may start out small, but don’t dismiss any progress you make. Not everything you do will immediately cause big waves, but you’ll notice the ripple effects as you check off those financial goals one at a time. Celebrate your successes, no matter how small. While there may be no quick fix, patience and determination will take you a long way to building up your credit score.
Don’t miss a thing
As we continue To Her Credit, we’ll provide you with expert advice to help you take the next steps toward financial independence. You can follow along as we offer targeted financial advice by women, for women by subscribing to our newsletter.
If you have a story about your relationship with finance, a question or comment you’d like to share, you can contact us at firstname.lastname@example.org.