Your credit score might seem like an elusive topic, but it is so important in order to get what you want out of life. It’s determined by your payment history, length of credit, and many other factors. What’s important to remember is that your score gives lenders an idea of how responsible you are with money.
To check your credit directly from any of the main agencies — Equifax, Experian, or TransUnion — can hurt your score. But if you try websites like Credit Karma or Credit Sesame, it will not hurt your score. Credit Karma and Credit Sesame are not 100% accurate, but they give you a general idea of what your score is. It’s important to remember that the score you see on those websites is not the same as what a lender or property manager will see when they check your score.
OK, let’s back up a minute.
What do you do if you don’t have a credit card?
I didn’t get my first credit card until I was 25.
How did I build credit? I made sure I never missed a payment with any of my bills. This is why it’s so important to learn how to handle your finances responsibly. If you don’t, it really will come to haunt you later when you’re trying to get a car or even an apartment.
When you get your first car or apartment, you will most likely have to get a family member to co-sign your loan or lease agreement. That is because you don’t have a lengthy credit history and they do. The lender or property manager wants to make sure that if you don’t pay your bills on time, then someone else will. That doesn’t mean you get a Get-Out-of-Jail-Free card. It means that if you don’t pay your bills, the person who co-signed will also take a hit on their credit if the bill isn’t paid. Ouch.
So what’s the moral of the story? Pay your bills on time!
After you’ve spent a few years being responsible with your money, then you can feel comfortable with a credit card.
Now, back to improving your score. Note that these tips will take a while to complete. It might take you a year or two, and that’s OK. But trust me, you’ll thank yourself when you get a mortgage loan or property loan to open your own business.
Use your credit card wisely.
You may have a large credit limit, but don’t come even close to it. Lenders want to know that you won’t be tempted to spend more than you earn. Even if you spend half the credit limit, that can hurt your score drastically. If using a credit card makes you nervous, try a store card or even PayPal credit. Store cards can come in handy with their discounts, but use them sparingly, and try to only have one or two. Make sure they are stores you go to very often. Each time you apply for a store card, it can hurt your score, too, so keep that in mind. PayPal credit is much less intimidating and is probably the easiest way to become familiar with how the process woks. You can use it to pay for things online and even in stores, and PayPal will send you a bill each month, too, just like a normal credit card.
Pay back your loans responsibly.
Let’s say you have a car note. You’ve been paying your bill on time each month and now you’ve got your loan down to an amount you can easily pay with one lump sum. Of course, you want to be free of debt, but check with your lender to make sure that you won’t be fined for paying off your loan too early. Trust me, lenders want to keep you in debt! If there is no fine, go ahead and close that loan! That’s one less thing you have to worry about. It may take a month or so for your score to reflect the closed loan, but it will definitely help raise it! Doesn’t that make you feel light as a feather?
Open new accounts when needed.
When you’re first starting out, you won’t have as many accounts (loans or bills). But as you go through life, you may move, or get promotions, and you’ll be able to open and close accounts responsibly. As an example, let’s say you had to move to a different state temporarily while working a job. You had to open some new accounts there, such as having your own apartment, paying utilities, opening a new bank account, etc. It’s not something you give much thought to; it just happens. But by doing those things, it can help your score by adding more length to your history, and adding diversity. An example of opening an account you don’t need could be getting a new car the same year you are trying to buy a house. Lenders won’t like that, and it will most likely hurt your score.
Trust me, it’s worth it!
I hope this has given you some insight on how the credit process works. I know, it’s not fun to think about. But just think how awesome it is to be completely independent and in control of your finances! It’s not easy. But it’s most definitely worth it. You’ll be living your best life — with financial peace — before you know it!
Have thoughts or questions? Don’t be shy! Leave a comment and share your insights!