Develop Good Credit Habits Now
Why is having good credit important? It is the foundation for all your financial needs throughout your life. Without good credit, lenders are less likely to lend money to you to purchase an auto, a new home, or offer you credit cards. And if you do get the loan you wanted, you will probably pay a higher interest rate than others. In addition, as a good credit risk, you may pay less for other things like home and auto insurance.
Begin building your credit early. You can apply for credit cards when you are 18. You may want to start by applying for department store or gasoline credit cards. These are easier to get approved and you can develop a credit history using these cards. Be sure to pay off any balance monthly. The longer your credit history without any blemishes, the better your chance of acquiring additional credit.
Your credit worthiness is determined by your credit score. There are three agencies that evaluate your credit and assign a score to it. They are Equifax, Experian, and Transunion. Credit scores range from 300 - 850, with the higher the score, the better.
300 - 629 Poor
630 - 689 Fair
690 - 719 Good
720 - 850 Excellent
A number of factors determine your individual score. These include payment history, length of credit history, on time payments, outstanding balances, and percentage of credit being used. After your score is determined, lenders use this score to evaluate your credit or loan request. It is better not to apply for too much credit at one time. Too many loan requests, in a short period of time, will adversely effect your score.
If you are just starting out, you may get turned down for a revolving credit balance card. There are some things you can do to establish credit. First, you can ask the credit advisor why you were declined. It is possible there is an error on your credit report that can be corrected. You can ask for a lower credit limit on your card, or get a co-signer (parent), or ask for a secured credit card.
While it is important to establish credit, it is more important not to abuse it. It is reported almost daily about people of all ages that are in dire straits due to poor use of credit. Ultimately, bad credit decisions can lead to higher interest rates, overwhelming monthly payments, repossession of property, and possibly foreclosure on your house. By using credit wisely, you can avoid any of these calamities and live with financial security.