Getting a grip on your finances can seem daunting, especially if you aren’t sure how to begin. Fortunately, there’s a common starting point, no matter your goals: Do a credit checkup.
Healthy credit helps you get what you want — often for less money. It can help you get a car loan or a mortgage, and at the best interest rates. It can mean cheaper insurance and the chance to escape utility deposits. It helps you qualify for credit cards offering cash back or free travel.
A credit checkup will help you identify weak spots and fix them. You need to check two things: your credit reports and credit score.
Your credit reports are a data footprint. They show how long you’ve had credit accounts, your balances and whether you paid on time. Reports also can contain negative information, such as accounts sent to collections or bankruptcy filings.
These records are compiled by three major credit-reporting agencies. You can see what’s in yours by using AnnualCreditReport.com. Federal law entitles you to at least one free copy every 12 months.
What to do: Look for errors, such as accounts you don’t recognize or payments marked late when you’re sure you paid on time. If you find a mistake, dispute it; contact information is on each credit bureau’s website. Wiping out erroneous negative marks can lift your credit scores.
Credit scores take all that data in the reports and apply a formula to convert it into a three-digit number that tells potential creditors how likely you are to repay a debt.
There are many kinds of scores, and you usually don’t know which one a lender or card issuer will check. But if you have good credit for one, you’re usually in the same score range for the others.
What to do: Pick one free credit score to track, from a personal finance website or perhaps from a credit card issuer. Avoid sources that ask for a credit card number — that’s a sign you’ll be pushed to buy additional services. Expect your score to fluctuate, but watch for big drops that your own activity doesn’t explain.
Maintaining financial health
Now, with this information in hand, focus on keeping your credit healthy or helping it recover by:
Paying bills on time, every time. That has the biggest influence on scores and keeps negative marks off credit reports.
Using no more than 30% of your limit on any credit card (and less is even better). That’s the next-biggest influence on scores.
Paying credit cards in full each month if you can. Don’t fall for the myth that carrying a balance boosts credit.
The article Want Healthy Finances? Start Here originally appeared on NerdWallet.