How to build a credit score from scratch
These measures help young adults to prove they are accountable to the owners and lenders.
When it is time for a student to start building their credit profile? The answer is simple: when ready. You will know by how they budget their money, track expenses and manage their checking or savings and debit cards.
Building good credit is a function of managing your bills responsibly. No teenager or young adult should be in bulk with a credit card or given responsibility for a car loan until they have proven they can manage their cash flow. This means they must show that can deal with obligations without constantly ask the Bank of Dad for more money.
Your child may be ready to manage credit as a rookie, especially if you are willing to look over his shoulder. I prefer to send children to college with pre-paid housing, a checking account and debit card related that does not allow overdrafts. In this way, they have no large monthly bills and can get used to the convenience of plastic without much threat dinging their credit profile.
On the other hand, this approach does little to build good credit. Debit cards and checking accounts do not count for much in the context of the major credit bureaus. Therefore each student must take specific steps to start building a good credit profile. In the real world you want and need from a potential employer or the owner or the car dealer who sees your credit report to see that you are reliable.
Contrary to what many people believe, you do not start adult life with a higher credit score falls as you embezzlement debt. You start with a score around 600 (highest score is 850) and must build through a history of timely repayment of borrowed money.
My oldest daughter is entering her final year at university and for us it’s time to start working on their credit score. After an overview of Erik Larson, founder of NextAdvisor, a financial comparison site oriented, here’s how we approach it:
• Get a credit card. This is by far the quickest and most effective way to begin a credit profile. If I did not think my daughter was ready, I would find a prepaid card or warranty that the reports for the watchdogs of credit (it will say on the application, or just ask). Because she is ready, we’ll choose from credit cards are best suited for students.
• Use credit cards wisely. A credit card opens all sorts of ways to damage your score. Never miss a payment. Pay in full if you can. If you must carry a balance that will not hurt you unless your balance is relatively large. Never charge more than 30% of your credit limit and preferably keep it close to 10%. And do not apply for more than one card at a time or with any frequency.
• Get another form of credit. Having different types of debt helps your score. Thus, a car loan or personal loan or other installment credit can help. It can even help to have a second type, but different card, like a gas card or card store. In some cases, buy furniture or appliances can help conditions monthly. But you have to ask the finance company if they report to credit bureaus.
• Pay all bills on time. If you live off campus, to pay the cable bill or electricity bill or the monthly fee for a new office or on television is a must. It will not do much to build your score. But if you relax and get referred to a collection company is a major ding on your score.
• Do not close unused card account. It’s against-intuitive. Canceling a card can lower your score, because it leaves you with less credit overall, and instantly raises the percentage of the debt capacity you use. A long credit history is part of what makes for a high credit score. So keep those old accounts and ensure that they are in order.