Let’s talk! Credit’s one of those things that everyone’s heard of but no one seems to talk about. We want to fix that. Keep reading for a step-by-step introduction to credit, credit scores, credit cards and more.
Credit is the ability to borrow money with the understanding that you’ll pay it back later. For you, this will most likely look like a credit card or a student loan. Your credit score is a numerical value (from 300 to 900) of your credit risk; it reflects how likely you are to make your payments on time and how risky (or appealing) you are to those who may lend you money. The higher the number, the better. Your credit history records a summary of all the types of credit you have, including your credit card bills and cellphone bills, and whether or not they’re in good standing. You’ll be able to check your credit score for free online or on your bank’s mobile app.
What’s my score?
Young people who have a limited credit history tend to have lower scores. This is where student credit cards come in. They take into account your short credit history and then can be used to help you build your credit history. To improve your score and keep it strong, pay your credit card bills on time. All the time. If you don’t, you could end up damaging your credit so be careful. When it’s time, there are things you can do to help make sure you pay on time, such as setting up pre-authorized payments. You are only able to apply for a credit card in your name and start building your credit score once you turn 18 – but we want to make sure you’ve got this info so you’re prepared when the time comes.
As mentioned, a credit card is a great way to build the credit history that future lenders and businesses need to see. It can also create the foundation of a credit score that will eventually help you qualify for loans and major purchases (like your first car). That said, it’s important you know that credit cards can be a slippery slope if not used correctly. You should make sure to pay off your balance every month or make at least the minimum payment on time to avoid damaging your credit score. Banks typically offer two types of credit cards, rewards cards – which earns you rewards points when you spend – or cashback cards – which, as described, earns you cash back when you spend.
Your future starts today
Down the road, a strong credit score is essential to financial success and will make getting approved for credit cards and loans for large purchases like cars and homes much easier. In other words, banks will be willing to let you borrow more money since you’ve demonstrated that you pay back what you borrow on time. Landlords also sometimes use credit scores as part of their screening process when looking for tenants. These may feel like far-off or “adult” purchases for some but setting yourself on the right credit path now will be hugely beneficial in the long run.
Let’s get started
A big part of maintaining and strengthening your credit score is organization: this will keep you paying your bills on time and keep that credit score where you want. While you may or may not have any bills you’re responsible for right now, let’s make a plan for when you do. Calendar reminders, sticky notes, monthly notifications – there are tons of options to choose from. Think of it like keeping up with your schoolwork: what organizational skills can you transfer over to managing your money?