Credit For Beginners: What It Is and Why It’s Important

Your credit history is one of the most important aspects of your financial wellbeing. You rely on it to get a car, apply for student loans, rent an apartment and it may even be requested by some employers. Because it is so crucial to your financial health, we want to help those unfamiliar with credit practices get a better understanding to help them in the long run.  

The Basics

Credit scores are, simply put, a grade that lenders, landlords and businesses can access to determine how trustworthy you are to pay money that you owe. There are three main credit bureaus that determine your credit score:

• Equifax Beacon
• Trans Union Empirica
• Experian FICO

These credit bureaus will track your payment history and generate a score that reflects your trustworthiness. Generally, if you pay your bills on time, your score goes up. If you don’t, your score goes down.

There are other factors that go into your score, such as how much debt you owe, how long your credit has been established, the types of credit you use, and how often your credit score is inquired about (too many inquiries into your credit score can negatively affect your overall standing). 

Your score has a range of 300 to 850:  

• 300-599 is very bad
• 600-649 is poor
• 650-699 is fair
• 700-749 is good
• 750-799 is very good
• 800-850 is excellent

Tips on Maintaining Good Credit

Now that you know what credit is, here are the basics on how to achieve and maintain a good credit standing:

• Pay your bills on time. It’s the most important factor in determining your credit, so never let a payment go late if you can help it. Take advantage of automatic payments if a creditor such as your bank, utility company or credit card company offers them so that you’ll never be late with a payment. 
• Don’t borrow too much. As a rule of thumb, keep your credit card or other revolving accounts at no more than 30% of the available credit limit. Anything over 30% can deduct points from your score. 
• Keep your accounts active and open. The longer you keep an account open, the more you show you can maintain a positive lender-borrower relationship and payment trustworthiness. 
• Keep inquiries to a minimum. Official inquiries into your credit score can drop your score as much as 50-60 points. However, there are tools, such as C&N’s SavvyMoney, that allow you to monitor your credit report, but are ‘soft inquiries’ that will not affect your credit score. If you have access to one of these tools, you’ll want to use them!

To learn more on navigating your credit score, speak to one of our C&N experts. We also do house calls! We encourage teachers or organization leaders to fill out our C&N Speaker Series form to get a C&N teammate to speak to your group. Our Get Smart About Credit presentation is designed specifically for young adults, and we enjoy helping them on their financial journey.