November 7, 2019 - Kasey Ledvorowski
If you watched any TV when you were younger, chances are you might recognize these guys from some of the most iconic and catchy commercials of all time. In case you need a refresher, click this link; I promise you will not regret it. Although these songs are catchy, the point the producers were trying to get across is that your credit score is really important in many aspects of life. They determine what kind of loans you are going to get, where you are able to live, and even which employers will hire you. Don’t know if you have a credit score yet? No worries! Many college students are in the same boat as you. If you have done at least one of the following three things, then you most likely have a credit score:
Have a credit card or have applied for one
Taken out either a school loan or a car loan
Opened a bank account in only your name (not your parent’s)
It’s important to regularly check your credit score to make sure the information is up to date and that there is nothing out of the ordinary. You can do this up to 3 times a year by pulling your free credit report from each of the three credit reporting agencies: TransUnion, Equifax, and Experian. If you see an error on your credit report, it's important that you contact that agency ASAP to get it cleared up. Now that you have a little background on what is a credit report and credit score, let's dive into the most interesting (and possibly dangerous) types of credit: credit cards.
Credit cards are a useful tool to be able to spend money without having to worry about cash or the balance in your checking account. However, they can also get people into trouble very quickly. Credit cards are a great way to build up your credit score if used correctly, but can also harm your score if used the wrong way. As seen in the graph below, 35% of the score comes from payment history. The score will be increased with payments made on time and decreased with payments that are late. It's very important that you make your credit card payment on time each month! In addition, it's important that you make the FULL payment each month too. 30% of the score comes from amounts owed, if you have a lot of money owed (credit card debt) this will negatively impact your score. The way that I like to view credit cards is very similar to how many people view their debit cards. Pretend that you only have $100 on it and that is all you can spend each month. This way you know that you can pay it off in full and won’t have to worry about carrying a balance over to the next month. This is when the interest rate will start to apply, and you will end up paying more money back than what you borrowed. One other thing to keep in mind is that you shouldn’t be spending more than 30% of your credit limit each month. For example, if your credit limit is $1,000 you should try to keep it $300 or below. You don’t have to spend a lot each month either! Just use your credit card for Netflix each month or gas! This way it’s a small purchase, but you’re still building up that credit each month. You shouldn’t view credit cards as a scary thing, but rather as a tool to be successful in the future!
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