Not only is having good credit a requirement for getting credit accounts at competitive interest rates, but it affects other parts of your financial life—even if you never take out a loan. Laura answers four questions from readers and podcast listeners about how to monitor, repair, and build credit for life.
Credit Question #2: Krystal says, “I’m a little concerned because I was contacted by a collections company today about an overdue doctor bill for $40 that I never received. I settled the debt today and asked if the account was reported to the credit bureaus. They said no, but what can I do to make sure this incident won’t negatively affect my credit?”
When in doubt about what’s happening with your credit, check your credit report. That’s the best way to know if it contains an error, negative information, or if you’ve become the victim of fraud.
You can get your credit report for free from each of the 3 nationwide credit bureaus (Experian, Equifax, and TransUnion) or from the official credit report site, annualcreditreport.com, every 12 months. You can view each report online, download it, or request that a copy be mailed to you.
There are also popular credit sites like Credit Karma and Credit Sesame that give you access to one or more of your reports once a month or as often as you like. They allow you to see your credit report, give you one or more of your credit scores, and provide customized recommendations about how to boost your scores with no strings attached--except for seeing ads.
If you see something that shouldn’t be there—like the bill that Krystal never received—dispute it right away on the credit bureau site or at annualcreditreport.com.Pulling your credit report is a “soft inquiry” on your file, which never hurts your credit score—so monitor your credit as often as you like. I recommend reviewing each of your credit reports at least once a year and perhaps more often if you intend to finance a big purchase, like a home or car, in the next 3 to 6 months.
Question #3: Asher says, “I’m a U.S. expat who’s been living abroad for the last 20 years. My FICO score went down slightly when I used a lot of the credit limit on my U.S. credit card—but then went back up to near 800 when I paid off the balance. Since I don’t have a U.S. job or loans, what can I do to improve my score?”
One of the most important factors in your credit scores is the ratio that I previously mentioned, called credit utilization. It applies to revolving accounts only, such as credit cards and lines of credit, that stay open month after month with no ending date.
Asher experienced first-hand how quickly this ratio can cause your credit scores to move up and down. Keeping a low utilization, such as below 20% is ideal for good credit, since it indicates that you’re using credit responsibly and not maxing out your credit lines.The ratio equals your total account balance divided by your total credit limit. For instance, if you have a credit card with a balance of $2,000 and a credit limit of $4,000, your credit utilization ratio is 50% ($2,000 / $4,000 = 0.50).
There are many different credit scoring models and each has a different numerical or alphabetic range. If Asher is looking at the poplar FICO score, which tops out at 850, being near 800 means that he’s already got an excellent score.
Working outside of the U.S. doesn’t affect your credit scores. The only way to build credit and maintain it once you’re an expat is to have active credit accounts, such as a credit card, and use them responsibly over time.
I recommend looking for a no-foreign transaction fee credit card so you can make charges overseas at the lowest cost possible.