Looking Ahead
Building and maintaining good credit is a lot of hard work. Knowing the basics will put you on the right path.
Building and maintaining good credit is a lot of hard work. Knowing the basics will put you on the right path.
Credit is your ability to buy something now, with a guarantee to pay it back later, often with interest. Good credit is a critical part of your overall financial wellness, and building a good credit score is easier than you think.
A credit report is similar to a financial fingerprint and includes critical financial information. This includes credit history, credit applications and public records, such as judgments or unpaid tax liens. Three credit bureaus maintain your credit report and credit score. Your credit score is primarily based on payment history, current debt load, length of credit history and number of credit applications.
If you are just starting out with credit, the best thing to do is open a joint credit card account with a parent or guardian and pay off any balance in full each month. Another option is to co-sign with a parent or guardian on a car loan and make on-time payments. Other steps you can take to start building good credit include:
Pay your bills on time
Your payment history makes up about 35 percent of your total credit score. If you make on-time loan and credit card payments, you are on your way toward a stronger credit score.
Keep your overall debt amount low
The amount you owe to all your lenders makes up about 30 percent of your score. The less outstanding credit you have, especially on credit cards, the better your score. But a history of good debt management scores higher than having no debt at all.
Stick with your lenders
The length of your credit history accounts for about 15 percent of your score. So, it pays to maintain your credit relationships.
Limit credit applications
The rest of your credit score (20 percent) rates your debt mix, the number of accounts you have, and whether you have recently applied for a loan or credit card. Limiting the number of credit applications you fill out should help your score.
