Whether you’re graduating high school or finishing college, it’s never too early to start thinking about building good credit. A good credit score will help you purchase a car, a house, and make plans for your future. Although you may not be planning to buy a home at this point in time, everything you do now regarding your credit will affect it for years to come. That’s why it’s so important to make responsible, informed choices regarding your credit.
1- What is credit and why is it so important?
Credit is how lending institutions and creditors measure your financial stability and power. Your credit score is a numerical representation of your credit. When you are buying a home, a car, or other major purchase, a lender will look at your credit score to determine whether they can work with you. Your credit score will influence the interest rates, what types of loans you will be eligible for, and even if you will be approved for a loan at all. That is why having a good credit score is so important.
2-What is considered a “good” credit score?
Credit scores range between 300-850. Generally, a very good credit score is 740 or higher, with 670-739 being good, 580-669 being fair, and 300-579 being poor or low. You are entitled to one free credit report a year without it affecting your credit score (too many hard credit checks throughout one year will lower your score).
3- How do I build good credit?
Simply put, building good credit requires good credit habits. That means that you are making regular payments on time on each of your accounts until the balance is paid off, be it a credit card, car payment, or another type of installment payment plan. If you miss payments habitually, it will affect your credit score; if your credit score dips enough, it will therefore affect whether companies feel they can rely on you to pay off your credit in the future, which may cause them to decline lending to you.
4- How hard is it to fix bad credit?
Late payments, collections, bankruptcies, and foreclosures are included on your credit report for seven years (with the exception of bankruptcies, which are included for ten). Bad credit canbe fixed, but it will take time. Certain knocks to your credit, like foreclosures, will bar you from major purchases like a house for quite a few years. As much as possible, pay your creditors on time, and if you can, pay more than the minimum payment.
Tips just for high school graduates:
- Look into a secured credit card: Unlike other credit cards, secured credit cards require a security deposit of hard cash to qualify. Used responsibly, it will help you build your credit score and creditors may even raise your limit or offer you an unsecured credit line after a period of use with reliable payment has passed.
- Avoid using credit cards for large purchases: tempting though it is, try to keep your credit card purchases to small items that you would have bought with cash or debit, like gas or groceries. Pay off the purchases within a few days and your score will gradually go up!
Tips just for college graduates:
- About your student loans: College graduates are usually given a grace period of six months before they receive their first bill for their student loans; at that point, you will need to begin paying or make payment arrangements. Failure to pay your student loans in a consistent manner will affect your credit score, so make sure you speak with your student loan administrator to formulate a payment plan that is manageable for you.
- Think twice before co-signing: if you’ve already established good credit, there’s a chance friends may ask you to co-sign for them on a car payment or apartment or other large purchase. While the desire to help is understandable and admirable, know that if you co-sign, you are guaranteeing that payments are made even if you are the one that has to make them. If the person you co-sign for misses a payment, it will reflect on your credit score as well. Keep this in mind if you ask someone to co-sign on your behalf, also.
Ideally you will never experience a single hitch with your credit, but if ever your credit is in need of rehabilitation before purchasing a home, Southern Trust Mortgage has you covered. Our in-house credit specialist can help you get and stay on-track with your credit so you can one day meet your goal of homeownership. Contact us to learn more.