September 9th, 2009
Credit Grade: Get an A+ with the Credit Karma Credit Report Card
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Wouldn’t life be easier if understanding the pages of incomprehensible data that make up your credit report and your seemingly arbitrary credit score were as easy as learning your ABCs? The Credit Report Card does just that, breaking down your credit report data into a simple, easy-to-understand A-F letter grading system detailing your performance in each of the five main components that comprise your credit score–credit history, on-time payment history, credit utilization, total accounts, and credit inquiries. The Credit Report Card also compares your credit score to other Credit Karma members so you can see how you rank against your peers.
Let’s start with credit card utilization (CCU). You need to keep your CCU, which is your total credit card debt divided by total available credit on your credit cards, between 1% and 20% to get an A on the Credit Report Card. If you go over that and carry between 21% and 40% CCU, prepare for a possible drop in your credit score, as Credit Karma users with a corresponding B credit grade had an average credit score 36 points lower than those with an A credit grade. Don’t use those credit cards regularly, don’t expect an A credit grade. If your CCU is 0%, meaning you are not utilizing the credit that card issuers have extended to you, your credit grade is most likely a C. Members of Credit Karma with a 0% CCU experience an average credit score of 658, for many that 73 point difference from an A credit grade to a C will likely impact their ability to get approved for additional credit cards or the APR terms of a home loan.
Next, on-time payments. Slip even a little bit in this category and your credit grade can plummet from an A to an F. Each bill payment out of 100 that you miss will drop your on-time payment credit grade a full letter grade, with 100% on-time payments getting you an A, 99% on-time payment, which is one missed payment out of 100, is a B, 98% is a C, 97% is a D, and 96%, or missing four bills out of 100, will get you a F. Average credit scores of consumers with credit grades A to F span a range of 135 points, from 706 to 571. You’ve heard it from every financial blog and article because it’s so terribly important: pay your bills on time. Set up automatic payments through your bank, check that every envelop is stamped, mark your calendar—just don’t miss a payment.
Lastly, average age of open credit lines is a metric that consumers have limited control over. The best things you can do is to open a credit card as a college student, use credit regularly and responsibly, make on-time payments, and most of all keep old credit lines open. While only 10% of the Credit Karma community has the experience of 8 or more years of open credit lines in order to get an A credit grade, 59% of Credit Karma users have credit lines 4 years old or younger, landing them in the C, D, and F credit grades. It’s obviously not something you can rush, so hold on to your oldest credit card and let the years roll by.
Figuring out your credit score seems like a complicated equation when data-rich credit reports can obscure the direct impact of your credit actions and history. But look to the Credit Report Card to help you better manage your credit because plain, simple English and bright colorful charts make financial management more fun than you ever thought personal finance could be.