It is crucial to understand your credit when you are just beginning to start your financial journey. A good credit score can help you in various things such as opting for an education loan, getting a home loan, buying a car using credit, or just as simple as opting for a credit card. You cannot get a good credit score built up overnight and have to work through it by making responsible use of credit. Let us see how you can achieve this goal in this article.
Importance of a good credit score
As you are just getting started on your financial journey, it is vital that you start building up habits that can help you get a good credit score. A credit score is a number that lets your lender know how creditworthy you are. In the US, credit scores range from 300 to 850. 300 is considered the lowest and 850 is considered the highest credit score available. Getting a good credit score helps in getting a lower interest rate when you opt for loans or credit cards.
A credit score is built up by having a good credit history, credit utilization ratio, the length of the credit history, and the type of credit mix that you have. What to consider when beginning your credit journey:
Opt for a credit card
This is one of the simplest and easiest ways to start your credit journey. As you are just starting off, your options can be limited because you have no credit history and it can be tough for the lender to estimate whether you are a risky consumer or a creditworthy consumer. But you can opt for a secured card. With a secured card, you have to deposit a certain amount as collateral.
Suppose you are getting a secured card having a $1000 limit, you will have to deposit $1000 as collateral. You can also get a co-signer for your credit card. Make sure that the person you are considering to become a co-signer has a good credit history which can help you get a better deal.
Authorized user of a credit card
If you are finding it hard to get a credit card, you can also become an authorized user on one of your friend’s or family member’s credit cards. In this way, you will also get the benefit of their credit history. It goes without saying that make sure to consider a person that has a positive credit score.
Though one drawback of this method is that their debts, pending dues, etc. would reflect on your credit history as well.
Ask utility companies to report your bill payments
When you are just starting off, you may not have any credit products in your name. But you may be paying bills such as cable, utility, etc. You can get these bill payments to count them on your credit report.
The downside of this method is that not all utility companies report bill payments done to the credit bureaus and thus it may not reflect on your credit report. But of course, there is no harm in giving it a try by contacting the utility company.
Believe in timely payments
This is a big thing for having a positive credit report. Whenever you get credit, make sure that you pay it back on time and in full every month. It will have a positive impact on your credit score and with time you will be able to increase it to a great extent. Also, it will eliminate the need to pay interest or any charges for late or due payments.
Keep an eye on your credit report
It is important to keep an eye on your credit report in order to know where you stand financially. Often people assume that checking your credit score can lower your score but that’s not true.
When you make a credit report request, it counts as a soft check and that doesn’t impact your credit score. Though when you are opting for a credit product such as a loan or a credit card, the credit providing company can request your credit report and that counts as a hard check and reflects on your credit score. You can get a free credit report once a year. So, make use of it and up your credit game!