Can’t Live With Them, Can’t Live Without Them

Credit cards are a necessary evil. They can be addictive like drugs but you also need a good credit history (judged by your credit score) in order to get certain jobs, get a lease on a house or apartment, or take out a loan for a car. Every bit of your financial history is recorded, sometimes in seemingly unfair ways, and if you aren’t careful your mistakes can come back to bite you years down the road.

What the Heck is a FICO Score?

Building your credit history is important. Your credit history is monitored by the three major credit bureaus in the United States- Experian, Equifax, and TransUnion and recorded as a credit score (using a model known as the FICO score) on a 300-850 scale. All
three credit bureaus have their own methods of acquiring information, so each of them may have a different score for you. 

The exact methods that are used to grade your credit score can be a little confusing and you might hear conflicting information from different people. The main things to know are that your payment history (i.e. if you paid your minimum balance due on time), the amount of money you owe, and the length of your credit history all affect your credit score. Additionally, if you have a variety of different types of credit on your credit reports this will help your credit score as well as having a small number of credit inquires (these come any time someone does a full credit check on you). 

So if you just have student loan debt and you pay it off on time each month that won’t help you as much as if you had BOTH student loan debt that was paid on time AND a credit card that was paid in full each month (or a car loan, home loan, bank loan, etc.). 

If You Apply and Aren’t Approved

There are three ways to help build your credit history if you can’t get approved for a credit card on your own yet (due to a lack of credit history). 

1. You can find a co-signer to apply with you, such as a parent or other guardian.
2. You can get a secured credit card, where you put down money against your balance that you essentially loan yourself over time (once you close the account you get this money back).
3. You parents or guardians can add you as an Authorized Buyer on their account. This will allow you to charge but does not give you administrative privileges and may influence you credit history.

Sometimes retail credit cards will have a lower bar to jump over in order to get approved, but be careful- these often have MUCH higher interest rates! 

The Best, Most Responsible Way to Use Your Credit Card (BE CAREFUL)

Once you have a credit card in your name, it is best to try and build your credit history in responsible ways. The primary factor in your payment history isn’t the AMOUNT of money you pay, but the length of time that your card is in good standing. If you don’t have any balance, this neither positively nor negatively affects your score (and most banks will close it automatically due to inactivity after 1-2 years).

Thus, the best thing to do is find ONE thing that you definitely need such as gas, groceries, your phone bill, or any other recurring charge you have each month. Charge it to your credit card, and then when you get the bill pay it IMMEDIATELY. If you do this each month you can slowly build a good credit history by using it for expenses you would have had anyway- with or without the credit card.

Make sure to resist temptation. Use it only for necessary expenses or emergencies. Don’t use it to go out to bars, buy video games or clothes. When you want to indulge, use REAL money but stick to a budget!

Each of the major credit bureaus lets you get a copy of your credit report for free once each year as a result of the FACT Act at annualcreditreport.com

Good luck kids, and may the odds be ever in your favor.

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