Kelly Shelton

Why is credit so important?  What is a credit score and how is it calculated?  What is good credit versus bad credit?  Well, your credit score is probably the single most important factor used to determine your credit worthiness.  If you have a low score you represent a bigger risk to the bank.  The higher your score the better your interest rates and the more money you save when using credit.  A bad credit score can cost you thousands.  Is it possible to change it?  YES!  It's up to you.

In today's world, it seems very few people actually save money or buy things with cash anymore.  They buy with credit because it's easy, convenient and they can buy things on credit sooner than saving up for them.  Credit, like interest can make or break your financial future - is it on your side or working against you? 

Establish a Good Credit History

This is essential for many reasons.  Not only can credit affect larger purchases like a home or auto loan, it can also impact your ability to rent an apartment, rent a car, get a job, or even open a bank account.  Can you imagine being told you can't work or live somewhere you've chosen because of that mysterious thing called a "credit score?"  It can happen. 

Be Proactive - Because credit is such an important part of your overall financial health you need to take control of it.  This means you need to know your credit score, the factors affecting it and ways to increase your score.     

Good credit can give you freedom and peace of mind, not to mention opportunity for growth, if you use it properly and responsibly. There are basic steps you can take to build your credit, improve your credit score, and eventually stop stressing out about it completely.  Good credit is a key factor to your financial health. See 

5 Steps to Build Your Credit:

1.    Pay Your Bills on Time -

Delinquent payments and collections can have a major negative impact on your FICO score (credit score.)  Your payment history has more influence on your credit score than any other factor. The longer you pay everything on time, the better your score.

2.    Keep Balances Low on Credit Cards

Try to not let your balance get anywhere near your limit.  It is not only much more difficult to pay off, and costs much more in interest -- it also hurts your score to have your cards nearly maxed out.

3.    Check Your Credit Report at least once a year … it's FREE!

What are lenders are saying about you? The information is all in your credit report at each of the three major bureaus: Equifax, Experian and Trans Union. You can get one free annual report at AnnualCreditReport.com.

4.    Understand Basic Credit Scoring

     These five components determine your credit score:

ü       Do you pay your bills on time? (Automate your payments to your creditors to ensure on-time payments.)

ü       How much of your available credit do you use, what are the amounts owed compared to the available credit? (Keep balances owed under 30% of the available credit.)

ü       The length of your credit history.  How long have you had your credit accounts? (Don't close credit accounts because you do not use them.  Keep them open to increase the length of your credit history.)

ü       What type of credit do you have?  (On-time payments to mortgage loans and car loans are an excellent way to build a great credit score.)

ü       How new are your credit accounts?  Approximately 10% of your score is from new credit.  (Opening new accounts lowers your average account age.  Too many new accounts will lower your score.)

5.    Apply for Credit while you're Young!

The sooner you start a great credit history the better.  If you're a college student it can be very easy -- typically offers pour in.  Be wise and consider which card has the best interest rate, no annual fee and good terms.  Ask your bank or credit union if they have any programs to help you build credit.  They may offer secured credit cards, loans with a parent as a co-signer or other ways you can establish credit.   

CAUTION!  Be careful and financially responsible. You don't need several cards, start with one.  They typically begin with lower limits until the credit card company sees how you handle credit.  So pay on time -- every time!  Don't get carried away… some naïve new cardholders think their available credit is like money in the bank!  If your available credit is $500, you haven't been given $500 -- instead you can now dig a $500 hole that's not easy to climb out of -- and in the end it'll cost you much more than $500 to pay off!  

Your credit history has other more subtle components and steps to build, repair, or improve your credit. 

Whether you've made some mistakes and want to repair your credit, or you have zero credit and are ready to start building it up, you've got options. Pay attention to your credit report, take control of what it contains, and work hard to apply these great tips -- and you'll be on your way to good credit, a better credit score, and many more possibilities!