Having good credit is extremely important. It can affect your ability to get a car, a house, or even a job. This is why it’s critical to start managing your credit before it turns your life into a mess.
A good place to start when managing your credit is by checking your credit history and credit score. Your credit history is a comprehensive financial record of your life. It includes everything from debt you owe, to accounts you have or had, even how often you’re late on bill payments.
You can find your credit history in your credit report, which by law you can access for free once per year. Three firms — Equifax, Experian, and TransUnion — are required to provide you your credit report upon request. There are many firms that claim to provide free credit reports, but they often come with strings attached. Stick with those three sources to get a completely free credit report.
These reports can be long and tedious, so to make them easier to digest they’re summed up in one key number: your credit score. This number provides a snapshot to anyone wanting to know about your credit, without divulging your personal information. Often this is what potential employers and loaners will check when doing research on you.
The highest credit score you can have is 850. Anything above 720 is considered good, and anything below 680 is considered fair to bad.
Now you know how to track your credit. But how do you get that 850 credit score?
Start small. If you have received credit card offers or applications in the mail, don’t apply for all of them. Read through your options.
How do you choose? Look at the interest rates, rewards, and fees associated with each card. There likely isn’t going to be one card that’s best in every category, so it’s up to you to decide whether it’s worth it to have a $50 annual fee if that means getting a discount on airfare. The late fees are also important to evaluate when selecting a card.
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Once you’ve applied–and hopefully been approved–for a credit card, use it wisely. Know what your credit limit is–the maximum amount you’re allowed to borrow on a card–and only use the card up to the amount that you can pay it off at the end of the month.
Why is it so important to pay your balance in full every month? Because then you never pay interest! If you don’t pay it off at the end of the month, you begin to accrue daily interest on every purchase from the moment it is made, not at the end of the month. The benefit of not paying interest is eliminated and that cup of coffee, car expense, tank of gas, and more all cost more than the checkout price.
Make sure you know your due dates as well. Late payments not only cost you money, in the form of fees and interest, but they show up on your credit history. So a late or missed payment will hurt you now and later.
Not biting off more than you can chew at the beginning of your credit journey will help you stay in control. But once you get used to managing one or two credit cards there’s no reason to stop there. The longer and more diverse your credit history, the better your score will be.
If you are already in credit card debt, don’t panic. Focus on paying off the card or cards with the highest interest rate first. Paying off credit card debt can be a financially painful process, but it’s absolutely necessary if you want to have a good credit score and a healthy financial life. Stay tuned for another blog post on how to cut back and save for the future.
By smartly deciding what credit cards are right for you, being careful how you use them, and staying on top of your credit history and report, you are well within your reach of achieving a high credit score.