Congratulations! It has been an amazing journey through college. Now you have a degree and hopefully a job, it’s time to move forward to the next chapter of this thing called life. Adulting! Let me officially welcome you to adulthood.
Your GPA might be at the passing rate, but do you know what your credit score is and why it is important to stay on top of it?
What is a credit score?
According to Investopedia, a credit score is a number between 300–850 that depicts a consumer’s creditworthiness. It those three little numbers that will determine if you are approved for a car, a home, or even get a job. Scores greater than 800 are considered excellent. While every creditor defines its own ranges for credit scores, the average FICO score range is often used:
- Excellent: 800 to 850
- Very Good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 300 to 579
It is extremely important to make sure that you stay in the good to excellent range if you want to be considered ‘credit worthy.” If not, you will be subject to higher interest rate or a slew of credit denial letters. Either way, it will prevent you from living the “adult” life that you want to live.
How do I start building credit?
Here are my top 5 Credit Tips for you:
1. Create a Plan – Do I need a plan? Yes you do? Why? Because potential creditors will check for evidence that you can manage your credit properly. A credit plan can help you build a positive credit history and a good credit score.
Pro tip: When creating your plan start by thinking of the amount of cards that you need. We suggest no more than 2. Think about how you will use them and how much you can afford to pay each month based on your income and expenses.
2. Research – Do I have to? Yes! You want to make sure that when you are choosing the perfect card that you have also done your research first. There’s a wide variety of cards on the market that caters to individual markets making it imperative that you choose the one that caters to your needs and will benefit you the most. How do you do that? When researching compare things such as interest rate, credit limit, and prepayment penalties. Choose the card that will offer you the best interest rate with no prepayment penalties.
Pro tip: Do not forget to take advantage of the introductory offers but make sure you understand the changes after the introductory period expires so you won’t be surprised. Also, look for cards that offer cash back options. You can save that money and cash it in and use it for things such as a quick weekend getaway or paying down your debt.
3. Be on time – Always pay your bills on time! This is a must if you want to have a good credit score. You don’t have to necessarily pay in full each month, but if you can it’s better because you can save on the interest charges. Any missed payments can greatly impact your credit score and can stay on your records for 7 years. You want to avoid that at all cost.
Pro tip: Bills like utility, cable, and internet services can be added to your credit history. If you pay these on time, they can report as positive payments and help increase your credit score.
4. Budget – More math? Yes! You may feel so excited after getting your first paycheck but remember this is the real world and going on a shopping spree won’t do you any good. Remember those students loans? Having too many wants at this early stage is not a good investment. You may find it easy to spend more money when you have a credit card but it is also easy to lose track of your cash flow. If this happens, you could potentially end up in debt if you don’t manage your finances correctly.
Pro tip: Write down a budget that is realistic for the entire year. Don’t forget to include your rent, insurance, loans, taxes, and other vital expenses including your car or emergency fund. Look for ways to save on things such as cellphone or cable and use the savings to pay down your debt.
5. Don’t Max Out – If you max out your credit card it will affect your credit score even if you pay in full every month. Lenders check your credit utilization when considering you for credit. Credit utilization is the amount of credit that was used from the overall credit limit you have. They do this is to assess the risk involved when they lend you money.
Pro tip: Never use more than 30% of your credit limit. If you stay below 30% and you pay on time then you are likely to maintain a high credit score.
Now that you have these 5 amazing tips you’re off to a great start. It’s time to face the real world with this credit knowledge on your hand. Just like your degree, you have earned a seat at the credit table. Make sure that you are using your credit responsibly. Having a great credit score is like having a great GPA; it puts you at the top of the class.
If you need assistance call us at 954-686-7182.