by Amanda Matz
As a senior in high school, I have heard the words “credit score” multiple times and have no idea what it is or what it means. As I’m getting older, I think it’s definitely something I should know about and you should probably know about it too. So, what is a credit score?
A credit score predicts how likely you are to pay back a loan on time (Consumer Financial Protection Bureau.) Companies such as Visa, Mastercard, American Express, etc. can determine your credit score through multiple different aspects such as your history with paying bills, if you have current debt, the type of loans you have already taken, the types of credit accounts you may have beforehand, how long you’ve had certain loans, and so much more. Your credit score is then used to determine whether you are offered a loan, a credit card, a mortgage, or any other credit services.
Credit score is ranked on a scale from 300-800. 300 is the worst with 800 being the best. When you have a lower credit score, you can be denied certain services such as a loan but, if you have a higher credit score, you wouldn’t have a problem getting a loan. Your goal is to have a higher credit score so that if you do need financial assistance, you’re able to have it when you need it.
How to Start Building Credit
Although having a good credit score isn’t the first thing on your mind, it should be something you consider. We are all young and we don’t think about how our current actions may impact us in the future, and credit score is something you can mess up easily. We should want to prevent having a lower credit score as we are younger so that in the future we are able to get financial assistance if we need it.
Start by getting a Starter Credit Card
A starter credit card is a good way to start building credit when you don’t have any to begin with. There are two different types of starter credit cards called an uninsured and insured credit card. An uninsured credit card is when you have no money to pay a security deposit. Companies look at your creditworthiness when you apply for the card to see if you are qualified to get an uninsured credit card. An insured credit card is a card that you pay a security deposit on. Insured credit cards also tend to set your beginning credit limit to what the security deposit costs. So if your security deposit is $700, your credit limit will be $700. This account also lets you build your credit and your credit history slowly over time.
Make Timely Payments for you Bills
A huge roll of building a good credit score is paying your bills or other expenses in a timely manner. Payment history is what makes up to 35% of your credit score (Natalie Issa, credit.com). When you pay a bill or other expense late, it can do serious damage to your credit score and that’s not something you want to happen, especially if you can easily prevent it.
Maintain a Low Balance on your Credit Card
People commonly think that if you have $700 on your credit account that that’s their limit and they can spend a majority of that money. While you can spend all that money, doesn’t mean that it’s good to. Maintaining a low balance on your credit card allows you to more easily pay off that amount within a shorter period of time, preventing late payments. While as you grow older, you may not always be able to control the amount of credit in your account, but it’s definitely something you should do as you are younger and don’t have as much to pay for yet.
Works Cited
“Credit Reports and Scores.” USAGov, www.usa.gov/credit-reports.
Gerar, Alex. “Best Starter Credit Cards.” Cardsmix.com, CardsMix.com, 1 Nov. 2017, cardsmix.com/starter-credit-cards.
Issa, Natalie. “How to Start Building Credit Once You Turn 18.” Credit.com, 2 July 2020, www.credit.com/blog/how-to-start-building-credit-once-you-turn-18-139817/.
Jim.akin. “What Are the Different Credit Score Ranges?” Experian, Experian, 23 June 2020, www.experian.com/blogs/ask-experian/infographic-what-are-the-different-scoring-ranges/.
Resources.display. “What Is a Credit Utilization Rate?” Experian, Experian, 11 Oct. 2019, www.experian.com/blogs/ask-experian/credit-education/score-basics/credit-utilization-rate/.
“What Is a Credit Score?” Consumer Financial Protection Bureau, www.consumerfinance.gov/ask-cfpb/what-is-a-credit-score-en-315/.
Amanda's post was very informative and had a great amount of valuable information. Some key ideas I took away were that a credit score becomes very important as you get older when applying for loans. It's helpful to start a credit score early but have it under your parents' name, this is what my brother does. He has a credit card, but it's run through my parents' account. He has this to build a credit score without abusing the credit card and messing up the credit score. I didn't realize the value a credit score held, and now after reading Amanda's post, I have more knowledge of the responsibility it holds when having a credit card.
ReplyDeleteI was in the same position as Amanda was when she started writing this because I also didn't know what a credit score really was or what it would affect. Once I turn 18, my parents are going to get me a credit card so I can start building credit and we are looking at one that has cashback so I can use the cashback to help pay for the balance I owe on the card. I think that when you turn 18, you should have at least some idea of what a credit score is and so many people don't. I didn't realise how much a credit score can affect even getting a loan in the future which could hinder a lot of other things in life such as buying a house, car, and other large purchases.
ReplyDeleteSeeing all of the commercials and advertisements on Credit Score , I thought I had more knowledge than I actually had. Just a few of the takeaways I had gotten from the article includes the importance of starting early on credit score. Another important fact that was realized is the importance of understanding the loan processes. Especially with us going into college soon.
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