My mom always says that, in the U.S., without credit you are no one. That sounds pretty harsh but having good credit is key for adulting.
You need good credit in order to buy a home, car and other major items. Your credit determines your interest rates on house mortgages, car payments, and loans. Good credit is an indication that you are responsible with your finances and can be trusted to make payments. Even renting an apartment requires a good credit score. Auto insurance and cell phone companies can sometimes take your credit score into consideration.
A credit score can range from 300 to 850. 300 to 579 is considered very poor, 580 to 639 poor, 640 to 699 fair, 700 to 749 good, and 750 to 850 excellent. It is fairly difficult to build up your credit and credit scores do fluctuate a lot.
Before I give you some tips on how to build your score, you should know what is taken into consideration when calculating your score:
- Credit card utilization
- Payment History
- Derogatory marks
- Age of credit history
- Total Accounts
- Hard inquiries
School never taught me how to build my credit, but I have learned through trial and error. Here are my tips on how to build your credit and keep it in a good stance:
- Once you’re 18, link yourself to a parent’s credit card. You and your parent will share a credit card and their good credit will “transfer” to you in about six months. If you continue to pay the bill on time, your credit should increase rapidly. After six months, you should be ready to take out a credit card of your own.
- Keeping your credit card utilization low is a good thing. Banks don’t want to see you depend on credit cards as much. This was a mistake I made, thinking the more I use it and the more on time payments I give, the more my score will increase.
- Payment history is key! Pay on time and before if you can! Banks usually have a mobile app that can help you keep track of your due dates and even pay your bills.
- Derogatory marks, a long-lasting negative record, should be avoided. You get these marks if you went through with bankruptcy, foreclosure or other major offenses.
- How long you have had your credit for is a big factor. The longer you have had it, the better. That is why it is important to start now rather then later so your score will be high when you need it for an apartment.
- Banks like to see that you can have multiple accounts open and use them responsibly. Don’t overwhelm yourself with many credit cards, though.
- Keeping your hard inquiries low is also important. Hard inquiries are marks on your report that can last for up to 2 years. They occur when your credit score is checked by a lender. With that being said, don’t just let anyone run your credit. Be smart about it. These marks, thankfully, don’t do much damage and fade over time.
- Check your credit constantly. You need to be on top of your score so you can keep your credit up. Credit Karma is a free app that is very useful. It’s free to download and checking your credit does not give you a hard inquiry. It’s also very helpful on what you need to do to improve your score.
That is all I have picked up on my short credit journey for now. Don’t procrastinate and get that credit score up!