March is National Credit Education Month

There are many month-long observances during March, but perhaps one of the most important is National Credit Education Month — a 31-day stretch of the year during which Americans are encouraged to:

• Clean up their finances 

• Fix their credit scores 

• Reduce their debt

Why is National Credit Education Month important?

Your credit score is what lenders and banks use to assess your ability to pay back whatever money you borrow: 

• You need at least some credit history to do anything from requesting a mortgage to buying a car to opening a credit card. 

• You need a good credit score to qualify for the lowest-possible interest rates when taking out loans. 

As such, understanding and managing your credit score has always been important. 

Yet in an age of data breaches, online fraud, and identity theft, it’s more common for incorrect blemishes to suddenly appear on your credit history — often without you realizing it.  It also doesn’t help that consumer debt is on the rise nationwide. Below are just a few surprising statistics: 

• The average U.S. household carries over $7,000 in revolving credit card debt.

• Americans collectively hold $14.35 trillion in consumer debt.

• At least 8% of outstanding auto debt is 90 days late.

• Student loan debt has now reached $1.55 trillion.

Add all this together, and it becomes clear why National Credit Education Month matters. We have a lot of debt, and it’s becoming harder and harder to manage. 

This is especially true for consumers (who are the primary target of this annual awareness month). However, credit education is also important for businesses, since payment fraud, identity theft, and  debt can affect merchants.

How to review your credit

The first step involves understanding how credit scores work. They’re usually based on numerous factors including: 

• The amount of debt you carry 

• The age of that debt 

• How often you pay on time 

• The number of hard inquiries 

The FICO scoring model ranges from 300 to 850, with the average score hovering around 711.3 

Next, you’ll want to request your credit report from one of the three major reporting agencies: 

• Experian 

• TransUnion 

• Equifax 

Under the Fair and Accurate Credit Transactions Act, you’re allowed one free report per agency every year.4 You can also use any number of monitoring services, like Credit Karma or Credit Sesame.

Once you have your credit report, look for any mistakes, including: 

• Unusual spending activity 

• Charges you don’t recognize 

• “Unpaid” balances (you’ve already paid) 

If you spot anything out of the ordinary, it’s important to correct it ASAP by contacting:

• Your credit card issuing bank or lending institution

• Any named merchants

• The reporting agencies 

It’s a time-consuming process; however, the longer you let these errors slide, the harder it will be to repair your credit score.

Finally, you’ll need an action plan for paying down the remaining actual debt. Even if your credit report looks clean, the ultimate goal is to improve your score as much as possible. Doing so will help you qualify for lower interest rates in the future. 

Below are some tips to help you get started. 

Methods to help reduce debt

Two of the most popular strategies to help reduce or eliminate debt include the Snowball Method and the Avalanche Method.

1. The Snowball Method 

With the Snowball approach, you make the minimum payment on all of your outstanding debt (so as to avoid late fees or interest hikes). Any money left over should be devoted to the smallest loan obligation. 

Once that first balance is paid, you can turn your attention to the next smallest debt. 

This strategy can help keep you motivated, since you’re able to see your progress very clearly. The downside of the Snowball method is that you end up paying more in interest than you would with the next strategy. 

2. The Avalanche Method

With this approach, you still pay the minimum amount on all of your balances. If there’s any money left over, use it to pay down whichever account has the highest interest rate. 

This strategy minimizes the total amount of interest paid as you work to reduce your debt. It’s a bit harder to see your progress and stay motivated, but the Avalanche approach can ultimately save you more money in the long run.

What will you accomplish during National Credit Education Month?

Ideally, you should revisit these strategies periodically throughout the year, but with our increasingly busy lives, that’s not always possible. 

Set aside time this March to get your credit history in shape.

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