Hey You, Smarty,
Buying a house, buying a car, applying for a loan, or a credit card. Basically, any “big kid” responsibilities, all are achievable by one major factor: credit.
Much like a home or car, credit must be constantly maintained.
I personally recommend tracking your expenses on a weekly or even daily basis. Likewise, doing a self credit check at least twice a year. Everyone is entitled to a free copy once a year of all three credit reports (from Experian, Equifax, and TransUnion) and I would recommend checking and comparing all three via AnnualCreditReport.com.(1) Checking your credit from this official government site more than once a year though will actually bring your score down, but there are plenty of free credit report sites you can check.
I downloaded the Mint app on my phone and it lets me check my credit any time I want. If you remember my post about eliminating debt(insert hyperlink to previous post), you may recall how important that is to having good credit.
I started building my credit by applying for a credit card. But I am embarrassed to admit that I didn’t go about taking care of my card like I should have. I started maxing it out every month and I wasn’t able to pay it off in full every month. Which dramatically as well as negatively affected my credit score.
Did you know that payment history – including late or skipped payments – makes up a whopping 35% of your FICO score?? (2)
I sure didn’t!
And then I closed the card after paying it off because I was annoyed by the bank and the constant up charge and fees I didn’t make myself aware of when I applied for the card. Two big no-no’s! I lost the 3 years of credit that I built when I paid the card off, which further produced a major drop in my score. Yikes!
Now, I definitely wouldn’t recommend doing that. But I was able to learn to better investigate and research banks and their different types of cards–including interest rates and hidden fees.
Research research research!
Alright, after getting a credit card, the next best thing is to make payments in full and on time!
This applies to cards, bills, and all payments under your name. After that first bad experience, I always always make sure I pay off my full credit card(s) balance every month. I also set up automatic payments to be sure that I am never late on a single bill. Automatic payments are great! Especially if you tend to be a spacey or absent minded person, or like me, you are just busy trying to stay a step ahead of your kids!
Another option (if it’s financially feasible) is to pay twice a month on your card or loan. I would often just pay the monthly rate as it was due, but when I split the payment and paid once just before the closing date, and then the rest before the due date, I saw my balance decrease faster, and I rarely, if ever, paid interest or late fees.(2)
Last, don’t be afraid to negotiate the negative disputes on your credit score. Late payments will stay on your credit record for 7 years. Yes! 7!
I never had a late charge on my credit (thankfully!) but my husband did when he was 19 years old. He just called to ask if they would be willing to erase that mark after 4 years of consistent on time payments. They granted him the request because he was in such good standing with them when he called.
Not to say the creditors will always do that, but it’s worth at least asking! The better your credit history looks, the better you look.
The bottom line is that credit is important. Good credit is how I bought a house, and had low interest rate on both that and my new car. I had a credit check run when I applied for several of my jobs, and a positive credit check lead to excellent work opportunities. Often, even when applying for apartments in my college years, my landlords would run a soft credit check to see if they would allow me to be a tenant. I never thought so many aspects of my adult life would be contingent upon credit! Keep that in mind and remember, It’s never too early and it’s never too late to start the road to better credit.