When you’re first starting on your path to adulthood, it’s important to build credit in a responsible way. A positive credit history and healthy credit habits are an important factor in getting the best interest rates, securing loans, calculating your car insurance, and even being approved to rent a property. But a good credit score is more than just watching your monthly balance and avoiding late or missed payments.
Understand Your Credit Score
Over thirty percent of Americans don’t know their credit score, which is weird because it’s pretty easy to check your credit profile online. Equifax, TransUnion, and Experian all have online tools that let you see your credit utilization, payment history, on-time payments, and FICO score all in one place.
If you want to establish credit, you’ll need to watch your credit score.
Credit Reports
Your credit score is a number (usually between 300 and 850) that is derived from your full credit report. Understanding your report is essential to building credit and, frankly, just a good personal finance habit. Every credit report includes:
- Personal information: Your name, addresses, Social Security number, and employers.
- Credit accounts: Your balances and limits on credit cards, mortgages, loans, and more.
- Credit inquiries: A count of how many times you have applied for new loans or credit.
- Public records: A list of bankruptcies, foreclosures, liens, or judgements against you.
Credit History
Your credit history details whether or not you make on-time payments, lists all of your accounts, shows any outstanding balances, and specifies how many recent hard inquiries you’ve had. Too many hard inquiries can impact your credit score, so you should try to limit credit applications to as few as possible.
Credit Limit
Credit limit and credit utilization are an indicator used to determine your level of responsibility. If your credit utilization ratio is too high, it can tell lenders you are a risky lendee, which can make it more difficult to secure a car loan, student loan, credit card, or other necessary loan.
Become an Authorized User
One way to start building credit at 18 is to become an authorized user on a relative’s account. If you have a parent, grandparent, or even a friend with a high credit score, they may be willing to add you as an authorized user. Authorized users can use the cardholder’s card, which can help to show early credit activity and establish a good credit history.
Note: Before becoming an authorized user, verify the credit card company reports the activity of authorized users.
Take Out a Credit Builder Loan
If you’d like to start building credit history, Intandem Credit Union is here to help. We can help to ensure your financial habits are contributing toward both financial health and financial freedom. So if you’re just starting out and working to build a longer credit history, come see us to discuss early loan options or open your first credit account.