Being out on your own has its financial importance and building credit is apart of that. Having a good credit score not only plays a role in the interest rates for your loans (like car and student ones), credit limits and credit cards, but also in building a stable financial future.
So what is a credit score?
A credit score is a rating of your credit activity, current lines of credit, mortgages, paid off loans, etc. The ratings are broken down as follows:
- 750-850: Highest.
- 700-749: Really good.
- 660-699: Average. This is where most people sit.
- 580-659: Poor.
- 300-579: Lowest.
You can get a copy of your score once a year from credit reporting agencies and some credit card companies will provide it to you monthly.
Ways to Build Your Credit
Secured Credit Cards: If you currently don't have credit, secured credit cards can be an option. You provide the money up front to use like a debit card and can switch the card over to a normal credit card with the creditor's approval.
Credit Cards from your Bank or Credit Union: These cards are issued if you have a savings or checking account and usually require you to have a certain amount in those accounts before issuing you the card. These cards usually provide a lower interest rate and are good for those building their credit.
Service Credit: This type of credit includes utility services, cell phone bills, cable providers, etc. Here you have an agreement with the provider to pay monthly for the services they provide.
Tips To Maintain a Good Score
Pay Your Bills on Time: This if anything affects your credit score the most. Paying your bills on time ensures you are a reliable borrower and aren't at risk for default. Your credit score can drop significantly if you do not pay your lenders on time.
Avoid Maxing Out Your Credit Cards: Keep the utilization down on your credit card to avoid maxing out and defaulting on payments.
Reduce the Balances on Your Lines of Credit: Like the previous tip, keeping the utilization down on your line of credit decreases the chance for default and decreases the interest accrued on the credit to lessen the chance of default.
What ways are you building your credit?
Thanks for the insightful article, Tesia! I enjoy reading your weekly blog because I learn new, important things that will impact my life after graduation. My knowledge about finances is definitely an area I need to expand upon before graduation. I agree with the tips you listed in your blog. I recently received my first credit card to start building good credit to my name. I ensure that I am only charging purchases to it if I am able to pay it off when the balance is due. Like you mentioned, I ensure my balance is paid on time in order to avoid late fees and keep up my good credit. I look forward to reading your future blogs and learning more!
ReplyDeleteWhitney, I'm glad you enjoy my posts! It seems like you are a doing a great job at building your credit by straying away from maxing out that card and paying your balance on time!
ReplyDeleteTesia, thank you so much for this article. I must admit that my knowledge on credit scores, before reading your article, was limited to the television commercials about free credit karma or free credit score...different site that give you your credit score for free. But I've never really known what a credit score was!
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