Let’s Get “Creducated”!

Learning the Basics of Credit with Rod Griffin, the Director of Public Education for Experian.

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What’s your level of credit education? Do you know your credit utilization ratio at any given moment, or are you more of an “I just maxed out my $1,000 credit card on lottery tickets—that’s investing, right?” kind of person?

No matter what your financial status, being educated about credit and its uses is important. Having good credit can save you money and protect you from payday loan debt traps. If you aren’t happy with your credit score, it can be improved—you just need to know how to start.

We spoke with Rod Griffin (@Rod_Griffin), Director of Public Education for Experian, one of the major credit bureaus, for a high-level refresher on the basics of credit and how you can best use it to improve your financial life. So whether you’re new to the world of personal finance and credit, or you want to revisit the fundamentals before taking on a major purchase (or taking out a loan), here’s a quick guide to the credit basics that can impact your life.

Lesson 1: Your Credit Score Matters

What is a credit score?

Rod says, “A credit score is a tool that lenders use to analyze the information on a credit report and determine lending risk. It’s kind of like a grade on a school paper—the school paper is a report that represents your credit history. The grade on the paper is your credit score. It’s what represents that information in that credit report. And a credit score is used by lenders to determine the risk of lending to a person.”

Why are credit scores so important?

“The better your credit scores are, the lower the risk of lending to you—meaning you’ll repay that loan as agreed. This means that you will qualify for lower interest rates in most cases, which will save you money and help you get the credit you need. So a credit score is important because it shows lenders that you are a good credit risk based on the information in your credit report.”

Lesson 2: The Key to Your Credit Score is Your Credit Report

Are credit reports and credit scores the same thing?

“It’s important to distinguish between a credit report and a credit score, because they’re not the same thing. And a credit score is not part of a credit report—that’s a very common myth. A credit report is the information about how you pay your debts. So it has info about your credit cards, installment loans, and so on, and whether you paid them on time or not. When a lender asks for a credit report, they can also ask that a credit score be calculated, or they can calculate it themselves, using that information from the credit report. The score is a representation of that information at that moment in time.

When you get your credit score you should also get a credit score report, a document or explanation of what that score means in terms of risk. This will show you if you are a good credit risk, a bad credit risk or a marginal credit risk. And it should include the risk factors that go with that score from your credit report, so you can go back to that credit report and identify those issues.”

Lesson 3: Checking Your Credit Report is Easier (and Cheaper) Than You Might Think

Should I check my credit report? Will it cost me anything?

“I would say, first and foremost, get your credit report. It’s free once every twelve months at AnnualCreditReport.com. And the credit report is what’s really important because that’s the information that you can own and manage and control. Get that credit report free once every 12 months. When you do that you can purchase a credit score, that’s one way. At Experian, you get the free report, and get the score, an explanation of what’s on that score in terms of risk, the scale that is used, and the risk factors in your credit report that most affected that score. You can purchase scores in other places, typically between $15-$20.”

I’ve heard checking my credit report will actually hurt my credit score. Is this true?

“That’s absolutely false. You can check your own credit report as often you like and it will never affect your credit scores or your creditworthiness, or your ability to qualify for credit. When you check your own credit report—and when I say check your own, I mean go to Experian.com, AnnualCreditReport.com, FreeCreditReport.com, those kinds of sites. Not from a lender. If you apply for credit or go to a lender who has to meet the Fair Credit Reporting Act for permissible reporting purposes, or if they have to enter it as if you were applying—then it would result in a hard inquiry, and that would affect scores, minimally. But if you get your own report, that will not affect scores in any way. That will result in a soft inquiry. That soft inquiry is simply a record that you looked at your report. Never be afraid to check your own report.”

Lesson 4: Your Credit Score Can be Repaired

What can I do to help my credit score?

“For most people, particularly in the subprime category, (if their credit scores or poor or won’t qualify them for the best rates), what we typically see are two common issues for their credit scores:

  1. Delinquency Making Payments. With poor credit scores the delinquencies are worse. It’s all related to payment history. For most people, catching up on late payments is the first thing they need to do. Bring those accounts current.
  2.  High Credit Card Balances. If you have high credit card balances and you’re maxing them out, that’s going to hurt your credit score significantly.

In most cases, if people can do those two things, their credit scores are going to start to improve.”

What are some of the other factors that can hurt my credit score?

“Other things might hurt a credit score would be:

  • Applying for a lot of credit all at once. If you have a number of inquiries in a short time, that might drag your score down a bit. Although it typically rebounds pretty quickly.
  • The length of your credit history. This is just a matter of patience in some cases. If you have a very short credit history, you may have to wait six months or a year or maybe two depending on how you’re using credit. In order to build that score if you’re doing everything else well.

That’s why the risk factors on your credit report are so important. They’ll tell you exactly what the risk factors are that you need to address.”

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About the Contributor: 

Rod Griffin is Director of Public Education for Experian. He leads Experian’s national consumer education programs and supports the company’s community involvement and corporate responsibility efforts. Rod oversees the company’s financial literacy grant program, which awarded more than $850,000 in 2015 to non-profit programs that help people achieve financial success. He works with consumer advocates, financial educators and others to help consumers increase their ability to understand and manage personal finances and protect themselves from fraud and identity theft.

Rod says, “My goal is to help people use a credit report to be a financial tool instead of a mysterious thing that lenders look at and take into a back room and tell you you’re approved or you’re not. I work to help any consumer be better prepared to get the credit they need, at the time they need it, and at rates and terms that are favorable to them.”

The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.