Financial First Steps: Managing Your Credit Score
Now that you know what goes into your FICO score and what it means, we can now discuss how you can build and raise your score, as well as how and where you can access your score for free.
Many young adults have extremely limited credit histories. This means that we need to build our credit scores by starting to think about different credit cards and loans. For those of us in college, student loans are actually beneficial in that they provide a great start to building credit history. The same principle goes for taking out a loan to get a car. Your credit history will grow, and, if you make the payments on time, your credit score will rise.
If you don’t have one already, think about different credit cards for which you could sign up. Again, for college students, many card companies offer great rates. Do not get more than one or two cards, though. Having too many cards actually hurts your credit score, and the more cards you have, the more likely you are to rack up debt (or use one card to pay off another, starting a circle of debt that can be extremely hard to end). Just remember that, if you are just starting to build your credit, each and every payment is crucial. Beginning your credit history with a series of late payments is a recipe for disaster.
Unhappy with your score? Have no fear. While you may be in a bad place now, the good thing about credit scores is that they only take into account late payments for the past seven years. This means that, if you get your finances together now and turn around your history of late payments, in a few years your credit score will be much improved. It is never too late to turn yourself around. No matter how low your credit score is right now, the sooner you decide to make a change, the sooner your score will rise.
Lastly, it is always a good idea to know what your credit standing is. Fortunately, you can get three free credit reports a year, one from each of the three national bureaus: Equifax, Experian, and Transunion. This can be done by visiting www.annualcreditreport.com. You should only use this site, as the other sites you may see advertised usually require you to purchase or sign up for some product. It is does not affect your credit score at all, and is actually recommended that you get one credit report every four months to continually be up to date with your credit status and to spot any potential fraud (a topic that will be discussed in a later post).
If you work on building a maintaining good credit standing, and even if you have poor credit and are trying to fix it, keeping tabs on your credit score can be an invaluable tool. You will be able to see what has negatively impacted your credit score and work on fixing the problems. Checking your credit score will also allow you to see any potential red flags for identity theft, which will be discussed further in subsequent posts.
For more information on setting financial goals, as well as a variety of other topics, check out AIER’s Start Here digest. Dedicated to helping young people set their “life strategy,” the Start Here digest is a great resource for high school and college students interested in getting their financial lives on track. Best of all, it’s free!
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