UFYT #8 - Establish good credit.
What the Hell is Credit and Why Do I Need It?
Want a car? You need credit. Want an apartment? You need credit. Eventually want a house? You need credit. Want to do all of these things without your Mom being a cosigner? You need credit, and you need to work towards building great credit.
Many young adults think of credit exclusively as credit cards, but that’s not all it's about.
Ways to establish credit when you don’t have any:
Apply for a credit card designed for people with little or no credit history. (Capital One Platinum, Journey Student by Capital One, Discover It for Students)
Apply for a credit card with a department store or gas station. Many of these have fewer “credit score/history” restrictions, with one catch - higher interest rates. Perfect for small monthly purchases that you will pay off immediately. Bonus? Many of them will include “perks” such as 5% off your entire purchases with Target’s “RedCard.” (Sunoco, Target, Walmart, Amazon)
Ways to improve your credit:
Don’t apply for too many cards at once. Every time a company checks your credit history, it shows up has a red flag on your credit. This is known as a “hard pull” aka a credit inquiry initiated by you, which was triggered by a credit card application (or mortgage application, or loan application). These show up on your credit report for two years, and can create a negative effect on your score. After one year, it is no longer calculated into your “score” but will still show up on your report. Your best bet is to see if you get any credit card offers in the mail that state you are “pre-approved” as these will not show up as a hard pull. Your second best bet is to only apply to one or two credit cards that you feel confident you would be approved for.
Pay your bills on time, pay them every month, and pay more than the minimum as often as you can. This is self-explanatory. In some cases, just having excellent payment history can do wonders for your credit. This is especially important if you find you have “bad” credit.
Need a car? Get into a lease. Brand new car, usually a 3 year plan, reasonable payments, and your car is always under warranty so if anything goes wrong, there are no out of pocket costs. Getting a lease when you have NO established credit will automatically increase your credit score drastically after just the first few months. (You will need a cosigner for this option)
Keep your credit utilization under 30% for all cards. Credit utilization is the percentage of credit balance to credit limit. If you have a credit card that has a $300 credit limit, don’t let the balance go above $100 without paying it off immediately. Credit utilization is the number 1 factor that goes into your credit score. Lenders and other entities view a credit utilization above 30% as being risky, and are more likely to deny you for loans, mortgages, credit cards, and other programs. People in the 800-club (those having a credit score over 800 which is amazing, nearly perfect credit), NEVER let their utilization go above 30%.
A great way to keep track of what your credit looks like is using Credit Karma. It is completely free (they don’t even ask you for a credit/debit card to sign up like many credit sites). It gives you a breakdown of all of your accounts (loans, cars, credit cards, etc), shows you your credit score, and gives you tips on how to improve your credit. I use this site multiple times per month to stay on top of my credit score and track how I am improving it every month. Staying on top of your credit history is a huge step to staying on top of your finances, and knowing where you stand when it comes to potential apartment leases, car loan, or other applications.
Life Hacks & Advice for People Getting Their Shit Together
