Good credit is the key to several different financial possibilities. It can benefit you in more ways than one. With good credit, it’s easier to buy a car or a house at a low interest rate. It can also help build the foundation for a sound financial future. If you are getting started, building your credit can be a complete mystery. If you want to learn how to get good credit at a young age, this article is for you.
Understand what makes a good credit score
A credit score is a measure of a person’s credit worthiness. It is the demonstration of how responsible you are with credit. Before you start building good credit, understand what makes a good credit score. The factors that affect a credit score include the following:
- Payment history – payment history shows how often you pay your bills on time. If you have always been diligent with payments, then it would be easier to establish good credit. On the other hand, late payments would be detrimental to your scores.
- Credit age – The longer you have been building your credit, the better.
- Inquiries – Applying for new credit often? Take note that too many inquiries can also hurt your credit score.
- Debt usage – Debt usage or credit utilization refers to how much of your available credit has been used versus your limit.
- Account mix – account mix refers to the number of credit lines you have open. The more credit lines the better.
Pay your bills on time and in full
Your payment history affects your score. To avoid negative marks on your credit report, be sure to pay your bills on time. If you don’t have a credit card, you might have other bill under your name such as cell phone bills, utilities and the like. These things can be sources of payment histories, too. Be sure to pay all your bills on time.
Apply for a credit card and use it
If you don’t have a credit card yet, you might want to consider applying for a credit card to build your credit. You must be careful when selecting and using a credit card. When used properly, it can help establish your credit, and generate potential rewards. Keep in mind that certain credit cards are designed for those with no credit history, including secured and student credit cards.
Become an authorized user
If you’re under 18, try becoming an authorized user on another person’s credit card. You can also try to talk to your parents about co-signing. As an authorized user, you don’t have to use the card to establish credit. Your credit depends on how the account holder uses their card. Be sure to check the credit scores of the primary user of the card before requesting to be added. If they make late payments, your credit may also be affected.
Apply for a loan
Getting a car loan, if you qualify, is also a good way to establish good credit. Make sure you’re buying the vehicle not only for the sake of building credit but also because you need it. Be aware that buying a car with a loan is going to be more expensive than paying it with cash. Loan payments come along with interest rates.
Don’t use all your credit
Using all your available credit in your credit card is not the way to establish good scores. Keep your usage to a minimum as much as possible. The goal is to use 30 percent or even less of your total available credit. So, for example, you have a credit limit of $10,000. If you have used $3,000, it means that you used 30 percent of your credit.
Building credit for the first time is not as difficult as it seems. Use this guide to help you get started on the right foot.
For more information on credit cards, car loans and home loans, please visit Calcite Credit Union.