In 2014, I landed at New York City’s JFK airport, three overstuffed suitcases in tow, incredibly excited about my new job in a new city. I’d spent more than a decade working as a journalist in Ireland, where I grew up, and the U.K., and now I was going to be running social media for CNN in their New York office.
I had a week to find a place, unpack the boxes en route from home and start my job. I was ready!
As I started my search for the perfect downtown apartment, my broker warned me that it wouldn’t be easy. To make matters worse, I applied for a new personal cell phone plan and was denied.
It was an abrupt lesson that, in the eyes of any lender in America, I was “credit invisible.”
One in every 10 U.S. adults is credit invisible, or without any credit history on record at the three major credit reporting companies. I had years and years of spending and saving and establishing my credit in Europe, but none of that had traveled with me across the Atlantic.
Unable to get a lease because of no credit history, I ended up staying in corporate housing — for four months. I had to rely on a company cell phone. These company perks aren’t available to everyone, so I was immensely lucky.
To build any kind of financial record, I started using prepaid credit cards. I finally found a landlord willing to take a chance on me but had to pay six month’s rent up front (fortunately I’d stashed enough away — thank you, F***-Off Fund).
The lesson: Your credit score matters. A bad one can be like a door slamming on whatever you aspire to in life — a new apartment, a loan to kick-start your business idea, even a phone to call your family. But as many as 4 in 10Americans have no idea how their score is determined.
This is a feminist issue.
A little more than 40 years ago, many women weren’t even able to get a credit card or their own line of credit. That changed in 1974 when Congress passed the Equality Credit Opportunity Act, which made it illegal to discriminate against anyone applying for credit based on sex, race, religion, marital status or age.
At Glamour magazine, where I work now, we’ve talked a lot about how women typically receive lower wages for equal work and get less funding for new businesses. A low credit score can mean that the money you do have will need to stretch even further to cover higher interest rates and higher fees.
So, if you have some catching up to do — on what you need to know, or on improving your credit score — here are a few things I learned:
“Your credit score is basically a three-digit number between 300 and 850 that tells lenders how likely you are to stop paying your bills,” said Liz Weston, a financial planner, author of “Your Credit Score” and a columnist for NerdWallet.
“Credit scores are used by landlords and cell phone companies,” she said. “Your car insurance premiums will go through the roof if you have bad credit — in some cases, your credit matters more than your driving record.”
And we haven’t even talked about interest rates on credit cards or a mortgage yet.
“These numbers have infiltrated our financial lives, and over a lifetime the difference between mediocre credit and good credit can be hundreds of thousands of dollars,” Weston added.
Finally motivated to know and track yours? I’m a huge fan of Credit Karma, a very easy app that can tell you your credit score for free at any time and will notify you if it changes. A good score starts at 690, Weston says; anything above 760 means you’re going to get the best rates out there.
To have great credit, it helps to understand the math behind your score. A big factor is credit utilization, or how much of your credit you’re using at any one time. For example, if you have a credit card with a $1,000 limit but your balance is $250, you’re utilizing only 25 percent of your possible credit.
“Make sure that the amount of credit you’re using on any card is below 30 percent, and ideally below 10 percent,” said Weston. This matters even if you pay the balance in full each and every month.
“If you have a $10,000 limit and you’re using $9,000 of it when a lender pulls your credit score, that’s going to be reflected as a 90 percent utilization rate,” she said. “Not good. Don’t do it.”
This is also why, if your lender offers to raise your credit limit, Weston recommends you always accept. It can instantly help your credit utilization as long as you keep your spending the same.
This will make or break your credit score.
“If you’re 30 days late with a payment, that can knock 100 points or more off your score,” said Weston. “And it’s really, really important to know that if you miss — I mean completely miss a payment — it’s like falling off a mountain.”
It can take up to three years to get your score back to where it was. That’s a long climb, so set up your autopay, calendar reminders, or whatever it takes to get that bill in on time. If you can’t make even a minimum payment, call your lender to discuss your options; they may at least wait to send an alert to the credit reporting companies that would ding your score.
In my credit-invisible state, I had to get prepaid credit cards for six months before eventually being accepted for a traditional card with a low limit of $500. As my repayment history grew month after month, I was offered more cards and larger limits, which I took to improve my rating, just as Weston advises. And it helps to have multiple lines of credit.
“It used to be that lenders would look at all your available cards and think, ‘Oh my God, she could go crazy tomorrow and max out her cards and not be able to pay,'” said Weston. “But they realized that the exact opposite is true: People who use credit responsibly tend to continue using credit responsibly.”
Auto loans, mortgages and other installment loans also help diversify your mix of credit and look good to lenders. “Lenders kind of rely on one another — if one lender says you’re creditworthy, the next lender feels a little more comfortable,” Weston explained. (A car loan wasn’t a good option for someone like me, living in Manhattan without a driver’s license.)
If you need to build credit relatively quickly, Weston recommends a credit-builder loan, available at many smaller financial institutions or credit unions. The terms vary, but you can apply for, say, a one-year, $1,000 loan.
“You make the monthly payments, but you don’t get the money up front,” says Weston. “At the end of the 12 months you get that money.” In that time, you will have established your credit (if you’re starting from scratch, you can get to a score in the mid-600s, Weston says; if you can add a credit card to the mix, your score should climb even higher) and built up an emergency fund — something many Americans don’t have. It’s a win-win.
One common one: divorce. Not only does it mean that suddenly two households are existing on an income that used to support just one, but it’s critical to separate all your credit accounts before the divorce is final. Weston gives this example: Imagine your partner gets the house but your name is still on the mortgage. If your partner makes a late payment, that affects your credit score. “It can trash your credit because your name is on the loan,” she said.
Know that with some guidance, good information and persistence, you can change your score over time.
“Nothing is permanent,” said Weston. “Just as you can mess up or lose your good credit, you can always improve bad credit or make mediocre credit good.
“That’s why it’s important to pay attention to it.”
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.