Give me some credit...
Quick tips to help you start building credit
Credit has gained a bad reputation and is something that’s not commonly addressed. When the topic of credit comes up in conversation it usually results in someone saying something along the lines of “Stay away from credit cards they will ruin your life!” As young people, we rarely hear positive stories of what credit can do. As a result, many young adults don’t understand how to use credit in a positive way that works to their advantage. For some, building credit can seem like an extremely complicated process, but it is actually easier than we may think. Here are some simple answers to common questions that will help you use credit in a positive way.
What do you need credit for?
Did you know that you need to have an established history of using credit in order to take out a loan? And let’s face it: most people aren’t able to pay for college, a house, or a new car in cash. So this means that most of us will have to take out a loan at some point in our life, which makes credit all the more important.
Good credit can also help you get better insurance rates. Most insurance companies use credit scores to determine the rate that they will charge for insurance – the lower the credit score, the higher the insurance rate.
Credit checks are also common by employers and landlords. A poor credit history, may result in you missing that awesome job opportunity or that new apartment.
How to start building credit?
Start small. A good first starting point is to apply for a credit card. If you (or your parents) aren’t comfortable getting your own credit card right off the bat, consider working with your parents to get a co-signed credit card or authorized user status on their credit card. Some financial institutions also offer credit-builder loans to help you start building credit history.
Once you have your credit card, charge small, routine purchases to it such as gas. Utilize the credit card conservatively, and pay attention to what percentage of the credit limit you have charged each month. The lower the percentage, the more positive your credit score. Most importantly, pay off your credit card balance in full, every month.
What is a good credit score?
- A perfect credit score is 850, and anywhere close to that number is considered an excellent credit score.
- Anywhere above 750 is a great credit score.
- From 700-749 is a good credit score.
- A satisfactory credit score is anywhere from 650-699.
- From 600-649 is a poor credit score.
- A bad credit score is anywhere below 600.
The bottom line
For young people in high school and college things like purchasing insurance, taking out a loan, and entering the workforce can seem like a lifetime away. But it is not as far off as you may think. So think about how you might start slowly building credit as early as possible to be able to qualify for loans, get good insurance rates and find a great job.
Nahshon Lora from Goshen, Indiana, contributed to this article. Nahshon interned at Everence during the summer of 2016 and is a member of the Goshen College Class of 2019.
This material has been prepared for informational purposes only. Please consult with your financial professionals.