Imagine walking into an auto dealership with a stack of cash that you want to use to put a down payment on a car. You have worked hard and all you need is to get the small auto loan. Problem is that your credit score is not high enough to finance you and you have to walk out of the dealership empty handed. This happens much to often because people are not well informed about their credit score.
A credit score is a number that ranges from 300-850. Anytime you borrow money, whether it is for a loan or credit card, it is reported to three credit bureaus. The three credit bureaus are TransUnion, Equifax, and Experian. Some companies report to all three, but some only report to one or two. Regardless, all three of your credit scores matter. The borrowers report how much money was lended and how much and how quickly it was paid off. The more responsible you are in paying off the money loaned to you, the higher your credit score. Remember that you must establish credit. In some cases, having no credit can be as detrimental as having bad credit.
Because of the Credit Card Act of 2009, anyone under 21 must have a trustworthy co-signer in order to obtain a credit card. There was a reason that this law is in place. It is important to truly understand credit prior to using it. Let’s face it, freshmen aren’t the most responsible individuals. However, this doesn’t mean that you cannot establish credit and start building your score. Talk to your parents about opening your first credit card and make a game plan for it. Having good credit when you leave college can be helpful in more ways than you could imagine.
As a rule of thumb, credit bureaus give the best considerations to people who spend 30% of their available credit and pay in full every month. This means that if you have a credit card with a $300 limit, you should plan to spend no more than $100 a month and be able to pay each month’s bills in full. If for some reason you are not able to pay your full balance, make sure and pay the minimum balance on time. A late payment is really detrimental to your credit score. Every time you pay a bill late, it negatively affects your score.
After learning to manage a credit card or small loan, the next step is to track and maintain your credit score. A great way to do this is to use a credit monitoring company to view your credit report. Online companies such as www.annualcreditreport.com give you a free credit report from all three credit bureaus once a year. Your credit report shows every line of open credit and how much and how often you have paid your debts. It also shows any companies that have looked into your credit recently. Looking at your credit report can also help you to ensure that no one has stolen your identity. If you want to track your report and score more than once a year, you can use a program like www.freecreditscore.com. It costs $14.95 per month, but you are able to monitor your credit score as often as you would like.
The bottom line is that you need to be aware of your credit score. Be smart in establishing it and seek assistance from someone who can you trust for guidance. A credit score can affect many life changing events such as buying your own home. Make sure to stay aware and stay smart when it comes to your credit score.
Lovejoy
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