Most people don’t have a great deal of sophistication with credit. Sure, they might have a card or two (or ten), but all of the fine print on those agreements, as well as the complex terms in credit theory – it’s just a little much to deal with. The problem is, if you don’t have knowledge about how credit works, you’re liable to use it in ways that will set you up for failure in the long term. We’ll assume for the purposes of this article that you aren’t badly in debt. If you are, fix that first. But if you are in fairly good shape with regard to debt, it’s time to get serious about your credit history.
You can get a free credit report once a year. The government allows it. That report will show all of the credit cards you have, all of the times you were late on payments, and all the other times you messed up or used credit too much. Maybe you’ll see the opposite problem – you don’t have enough credit history to support a good credit score. One great course of action is to get a credit card specifically for people with bad credit; comparison sites like CardsMix or Creditcards.com have a lot of great options for you. But we’re getting ahead of ourselves. Let’s talk about the best reasons to check your credit history and score today.
- It Can Tell Your Financial Future. Our credit histories tell a lot about the way we’ve used money in the past. They do so for a specific reason: to tell future lenders whether or not we are trustworthy with money. When you apply for a credit card, for example, there isn’t some law about how much interest that credit card is going to charge you. It all depends on your credit score. People with scores in the upper 700’s look like they are very reliable with money and repayments, so their interest rates will be lower. The lender takes on less risk to give them their money. All in all, your credit score will tell you how much you are likely to pay for every loan you make in your future, including expensive loans like mortgages where a few points different in interest rates could mean tens of thousands of dollars.
- It Can Jog Your Memory. You may have items on your credit history that surprise you. If you have a payment that went to collections, this could be holding your score down. You can fix this by disputing the item. Sometimes that just makes it go away because the lender doesn’t want to take the time to track down the paper trail that proves the debt is legitimate. Other times a dispute will put the lender on your trails, so only dispute if you can afford to pay off the debt. Paying off the debt will make the negative item go away.
- It Puts You in Control. Being aware of your credit situation puts you in the driver’s seat. You won’t be limited to letting things just happen to you. You can act intentionally and learn skills that will help you build wealth for the rest of your life.
There are lots of reasons to explore your credit score and credit history, but these are some of the most important.