Developing a healthy credit history is important for many reasons. A poor or non-existent credit history can hinder your ability to qualify for a loan, rent an apartment, pay lower insurance rates and even get some jobs! Starting with your first credit card everything you do that involves credit is part of your personal credit history. To have a beneficial credit history, you have to use credit correctly. But exactly what is “correct?” Learning how to have the correct credit can be overwhelming, here is some help…
If you’re just starting out and trying to obtain credit, begin with one credit card and don’t open up too many cards within the first few years. The more credit you have, the more you may end up using and the more payments you’ll have to make. If there are too many inquiries into your credit and/or new credit cards can have a negative impact on your credit score.
The major credit bureaus keep files on your financial activities that impact your credit. You are entitled to one free credit report within each 12-month period from each of the three major credit bureaus.
Your Credit Score
As part of your credit report, your credit history is “graded” and this becomes your credit score. Maintaining a good credit score is a key factor in your ability to qualify for loans. How is your credit score determined? There are several factors:
- 35% payment history
- 30% amount owed
- 15% length of credit
- 10% new credit
- 10% credit mix – your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans.
Each credit-reporting agency has a slightly different version of your credit score, but these ranges will generally apply:
- 700 – 850: Very good or excellent
- 680 – 699: Good
- 620 – 679: Average/OK
- 580 – 619: Low
- 500 – 579: Poor
- 300 – 499: Bad
If you are just starting out establishing credit, or need to improve your credit score, here are a few things to keep in mind:
- Avoid maxing out credit lines on cards or loans.
- Avoid applying for too much credit. (All those department store credit cards could count against you.)
- Consistently make all your payments on time.
- If you carry a balance, pay it down on credit cards or loans.
- Satisfy any overdue bills.
- Let your accounts age. Leave your oldest accounts open since they help increase your credit age and build good credit.
- Pull your credit score annually. To ensure there aren’t any discrepancies on your report which could hinder your credit score.
Your credit scores estimate how you handle your credit by using the information in your credit reports. You will want to monitor your credit score and credit report to watch for errors. If you see any discrepancies on your credit report you will have to report these to the credit bureau.
In conclusion, by building your credit you are able to make large purchases, rent property and event get a job.