Entering adulthood means no longer stressing about grades and receiving report cards, right? Err, sorrys but no.
Enter: the credit score. Just like college acceptance committees judge your high school GPA, a credit score is the way financial institutions judge your credit worthiness.
Credit scores essentially are your high achieving, school-girl nightmares following you into financial adulthood. Your credit score tells lenders how trustworthy and responsible you are at handling debt. It takes a couple of factors into consideration:
Credit scores range from 300 to 850. A good credit score typically falls between 700 to 800. Over 800 signifies “excellent.” Aka A+ and a gold star.
FICO and Vantage both distribute credit scores. The main credit bureaus Experian, Equifax, and Transunion use VantageScores. (You may be familiar with Equifax from their security leak in the summer of 2017.)
FICO and VantageScores use the same rating system (300 to 850) but there are a couple of differences:
Nobody likes a grade-grubber (ahem, guilty), but sometimes you got to do what you got to do, right? Thankfully, with credit scores, it’s less sucking-up and more good behavior. Plus, you don’t even have to study.
It’s kind of a duh piece of advice, but a lot of people still mess it up. Paying bills on time makes you an A+ citizen in the credit score formula.
Spending half or more of your credit card limit? I know racking up credit card reward points feels amazing, but your credit score’s a killjoy. Charge 30% or less of your credit limit on one credit card. So if your credit limit is $5,000, you should be charging $1,500 or less. And always remember to pay your balance in full every month.
Ever open a credit card with your favorite retailer purely for the discounts they promise? While it’s fine to have another credit card (as long as you don’t open a bunch at once), you also shouldn’t close a card immediately after opening. It’s not like buying one month of HBO to binge Game of Thrones. The longer you have a card, the stronger your relationship with credit looks to lenders.
Wait, what? How does that make sense?
Your credit score looks at your credit history. To have history, first, you must build trust in your relationship…with debt. Whether it be a credit card, student loan or something else, taking on a line of credit and paying the bills on time show offs your adulting prowess to credit bureaus.
Credit takes a while to build. If you’re new to building debt lines, give it time. Maintain your open accounts and pay your bills promptly. Stick to the 30% or less credit utilization rule.
Childhood never really goes away. Report cards shape-shift to credit scores, aka a number that rates your debt-holder responsibleness on a scale from 300 to 850.
Boom! That’s everything you need to hit the debt honor roll.
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