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Adulting 101: Why Your Credit Score is Important

    • Adulting 101: Why Your Credit Score is Important

      Having a good credit score can positively affect you in numerous ways as you start your journey through adulthood. Learning about credit is the first step!

      Many of you have probably heard about credit cards and some of you may even have one already. Even though people don’t like to talk about it, credit cards are very important. When used correctly, they help you establish a good rapport with credit bureaus.

      Credit bureaus are essentially groups that keep track of whether or not you paid your bills on time. If institutions, such as banks and lenders, see you pay your bills on time, they are more likely to trust you with borrowing their money in the future.

      This will make it possible to finance things like your phone, apartment, and school loans in the future. This post is not to encourage you to get a credit card now, but to introduce you to the ins and outs of credit before heading into the “real world.”

      What is credit or a credit score?

      When people refer to credit, they are usually referring to your credit score. According to Experian.com, this score is used by many institutions to make decisions regarding how much money they can trust to give you and have you pay back.

      What’s the best way to build credit?

      Experian.com says the best way to build credit is by utilizing a credit card and paying your bills on time. A credit card is like a loan. The bank that gives you a credit card, sets a certain amount of money that they believe they can trust you to pay back. You then have the “freedom” to use this money under the assumption that you’ll pay it back over time.

      According to Equifax.com, credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.

      What’s the difference between a credit card and a debit card?

      • The difference between a credit card and a debit card is that with a debit card, you’re pulling money straight out of your checking account vs. with credit cards, you’re borrowing your bank’s money and then, paying them back.

       

      • If you do not pay off your credit card balance in full each month, a monthly interest fee will be charged to your account until you can pay your full balance. The interest will just keep accumulating on whatever you can’t pay at the end of each month and what you will have to pay back will just get bigger and bigger. Pro tip: if you want to apply for a credit card, shop around to see which one has the lowest interest rate and don’t be surprised if the rate on your first card is pretty high. The good news is that you’ll be able to apply for better cards with better rates as you improve your credit score.

       

      Credit is debt, not income.

      Make sure that when you use your credit card, you either have or will have the money you’re spending in your checking account before the month ends. This way you won’t be digging yourself into a hole you can’t get out of. You want to be able to pay at least 50% of your bill each month, but paying the whole bill every month looks even better to credit bureaus and increases your credit score.

      The bank will issue a max limit; an amount that you cannot go over when using your credit card. The max limit may be high, but still spend only the amount that you know you can pay back in a short amount of time, before you generate the interest mentioned above. Holding your charges to a quarter of your max limit can be helpful to ensure that you can pay back the money on time and increase your credit.

      Having a credit card sounds terrible… Why would I want that?

      America is built on credit. Read that again! And again! You will probably not be able to get the job, car, apartment, or phone you want at the price you want with bad/no credit. However, as long as you follow the advice above, you’ll be fine. Be sure to pay all of your bills on time; not only your credit card bill. Over time, this will increase your credit score.
       

      Here are some resources that will help to further your knowledge on credit:

       


      You can check your credit score with platforms like Experian, CreditKarma, Equifax, and TransUnion.

      Reply
    • I don’t have any questions or issues about credit but I wanted to stop by to encourage high school students to truly educate themselves around financial literacy before they journey fully into their adulthood. If they begin to establish a strong financial foundation now, with small savings accounts that take advantage of compound interest, and strategic use of credit tools to build their credit histories, they will open up so many options for themselves.

    • You’re so right @nwilliamsnola and @shenteia. I made some HUGE mistakes when I was freshly 18 that took me YEARS to recover from. I was at a concert where I had to sign up for a credit card to get some free swag and had no idea what I was getting into. I didn’t really understand how credit cards worked and, long story short, when the credit card company finally sent a big bill to my home address that had grown and grown because of the high interest rate, I got a phone call from my parents and it was NOT PRETTY. I wish I would’ve known what I was getting myself into and I’m so grateful posts like this exist so people don’t repeat mistakes like mine.

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Credit is a tricky subject to understand; What questions or issues do you have regarding credit?

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