The ABCs of Establishing Good Credit
Congratulations, graduate – you made it through four (or six, or more) years of higher education! Now you can quit studying and start doing, right? Not so fast. When your life outside school begins, you need to keep learning about credit, and how to use it wisely to make it work for you.
It’s likely you didn’t take any kind of personal finance class in high school; just 22 out of 50 states require high school students to take such classes, according to the Council for Economic Education. No worries. You can still score an A in real-life money management by applying some skills you learned in grade school to help build your credit score and make smart money decisions.
Keep these ABCs of good credit in mind:
Now that you have a job, the credit card offers are likely to start pouring in. Before you sign up for new credit, be sure to read the fine print on the application and card agreements. The Credit Card Act, which went into effect in Feb. 2010, requires that credit card companies disclose fees prominently on each statement and let you know how long it will take you to pay off your balance if you make only the minimum monthly payment. Also, as long as you are making timely payments, lenders can no longer hike interest rates without your knowledge – unless your payment is 60 days past due.
It’s also important to read your credit report. Monitoring your credit can help you catch signs of identity theft, understand how certain financial decisions influence your credit scores, and help you decide what steps to take to help move you toward your credit goals.
If you discover information on your credit report that’s in error, you’ll need to write to the reporting credit bureau to get it corrected. The Fair Credit Reporting Act requires the bureaus to investigate disputed information once a consumer notifies them. If the information truly is incorrect, they must remove the erroneous information from your credit report.
Do the math. If your credit scores are low (you want to aim for a 720 or higher), begin taking steps that can positively influence it. Pay all your bills on time every month. Pay down credit card debt, which will help improve your credit utilization ratio.
Keep a household budget and stick to it. Tracking how much you earn and how much you spend each month can help you make better decisions about saving, spending and credit use.
Every time you pay a bill, use a credit card or take out a loan, you’re making history – your credit history, to be exact. Your credit score is based on your credit history, and uses your past and current behaviors. Remember that it’s not just lenders who look at your credit score. Utility companies, mobile phone companies and some employers also consider your credit score when interacting with you. So make sure the history you’re writing about yourself casts you – and your creditworthiness – in the best possible light.
Credit best practices arn’t nearly as complicated as astrophysics, but it is a kind of science. The good news is that they’re easy and basic to understand. Get educated on the science of money management and good credit habits. Plenty of online resources can help you understand how your financial behaviors affect your credit, and how your credit affects your life.
As you begin building your career, the lessons you learned in history, reading, math, and even science class can help you boost your credit knowledge and achieve your goals – financial and otherwise.