You need established credit in order to buy a home or a new car. Credit is how you prove your trustworthiness to lenders, so it is never too early to start taking action on building your credit. That trustworthiness is measured by a credit score, which can range between 300 and 850. Your credit score is made up of five categories:
* Certain actions such as late payments, student loan default, and a high debt-to-credit ratio will negatively impact your ability to open new lines of credit.
Credit Score Scale
Excellent (800 – 850): Easy approval process when applying for new credit, you will be offered the best interest rates. If you are in this range, you have demonstrated a long credit history of no late payments. You have a stable employment history, and various types of credit.
Very Good (750 – 799): If your score is in this range, you may qualify for better interest rates from lenders.
Good (700 – 749): For the most part, a “good” credit score is going to get you approved. You will be eligible for most loans, but will not be offered the best interest rates.
Fair (650 – 699): If you fall in this category, you are either working to rebuild your credit after some tough times, or you are doing well and have recently run into some trouble. You may be asked for down payments for some types of credit. Expect higher fees and interest rates.
Poor (600 – 649): Poor payment history, collection accounts, bankruptcy filings, or out of control credit card debt may put you in this category. You will most likely need a cosigner for any loans, and mortgage loans will unlikely be an option.
Very Bad (300 – 599): Only specialized lenders will lend to you, and your interest rate will be very high. If you fall in this category, you will have a hard time getting insurance and employers who check credit reports will not consider you.
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Know Your Credit
Protect yourself and your finances against identity theft. Below are some basic steps you can take. The Federal Trade Commission provides helpful tips for keeping your personal information secure.
Check your Credit Regularly
You can get one free credit report each year from each of the three consumer credit reporting bureaus. You’ll want to monitor your credit report to ensure that no activity occurs on you account that you didn’t initiate. AnnualCreditReport.com is the official site for consumers wanting to obtain their free annual credit report. Warning: “freecreditreport” is not free.
Tip: Set an appointment on your calendar for every four months. Get one of these agencies’ reports every four months. This is your best protection to know that you identity is safe and your credit history is positive.
Consumer Credit Reporting Bureaus:
Protect Your Personal Information
Identity thieves can use your personal identifying information to open accounts, apply for loans, apply for jobs, or commit crimes. Carefully guard your social security number, date of birth, address, bank account numbers, and your student ID number. Shred mail that contains any of these. Be conscious of where you are when you give your social security number over the phone. If others can overhear you, they can steal your information! It is also a good idea to review the personal information that you’ve included on your social media accounts.
Tip: Be careful of entering your information online – only do so if you trust the site (look for the “https“). The “s” means “secure”.
Credit Card Questions to Consider
When you are trying to pick out a credit card, pay attention to the terms. Consult a parent or someone you trust when you’re making the decision.
Fixed Vs. Variable Interest
Interest rates can be “fixed” or “variable.” A fixed rate remains the same for the entire lifetime of your loan. Variable rates can shift (typically annually) based on market factors.
Simple Vs. Compound Interest
Some accounts pay simple interest, which only accumulates on the principal balance you deposited—not on any accrued interest that has previously capitalized. You’ll still earn money with simple interest, but it will take longer to earn the same amount as you would with compound interest.
Enjoy this fun infographic from SALT to learn more!