Just now getting started on your credit score? Don’t worry, here’s a guide to what to know before getting started. After reading a few articles there aren’t many that give a good break down on what to expect and the ups and downs to building a good score.
A credit score shows lenders whether or not you are a good candidate. If managing money is not a strong suit and it is too much hassle paying the majority of your bills on time most likely your score will be low. Before diving into the basics of a credit score here are a few need to know terms. A credit line is the amount of money given. Different impacts will cause a score to fall or rise.
When learning about your score it is best to through Credit Karma or Creditwise. It is free to set up. Though they only give Transunion and Equifax score the Experian score is not too far off from Equifax. Credit Karma updates a score every week. There is a downside to the update every week. It can sometimes take a few weeks to a month for a full accurate score.
Six factors impact a score. Payment history, credit card utilization, derogatory marks, credit history age, total accounts, and hard inquiries. Some of these factors have more of an impact than others.
Payment history has a high impact on a score. If payments are made on time lenders are more likely to give loans and offer more with having the faith of payments made when scheduled.
Credit card utilization is another high impact factor. Every credit card has a credit line. To keep a satisfying score, it is recommended not to spend more than twenty-nine percent of the credit line. This is for two reasons – it is easier to pay off and anything under thirty percent starts to put your score at risk.
Derogatory marks are the last high impact factor. Derogatory marks are received when an account goes into collections.
Credit age has a medium impact on the score. While still unsure how exactly the total age is calculated. All accounts opened are combined to determine the age.
Total accounts and hard inquiries have a low impact, however, when building a score the impact can seem significant.
Now, that we have the basics we can go into details of a credit card.
It is best to get a secured credit card when starting. Most secured cards require a deposit which determines the beginning credit line. As payments are made on-time there might be an increase in the credit line. When shopping for a credit card check the APR. A low APR means that when the credit card is not fully paid off a small percentage is added on to what is owed. While that can make it a little challenging to pay off as long as the minimum due is paid it won’t be as bad.
Determining which company to go with can be a little challenging as well. Credit Karma will find some of the best lenders. Finding family and friends that have credit cards can help determine the best decision.
One option most people do not discuss is authorizing users. Authorizing a user to a credit card means that the person’s name is still responsible for payments, however, they have given another party permission to use. The upside is if you’re not good at building credit, but a family member is this can cause your score to go up as well as theirs. Of course, if payments are not made both parties’ scores will be affected.
Building a good credit score is not as stressful as some may make it seem. As long as payments are made on time your score will go up in no time.