You Are Your Credit Score
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In October 2014, US News published an article titled “5 Reasons Your Credit Score is More Important Than Your GPA.” Aimed at college students, the article talks about how, once you leave school your GPA isn’t going to matter much but a credit score? Well, that’s pretty much forever (fluctuating, sure, but forever).
That might sound overly dramatic, but that doesn’t keep the sentiment from being true. Our credit scores determine everything from our ability to buy a house to even our employability. In the US News article, the author points out that our credit score can even have a negative effect on our romantic lives.
This is why every bank and credit agency out there wants people to start building credit as early as possible. The earlier you start building your credit, the easier your life will be–provided you pay your bills on time and are financially responsible. Unfortunately, the younger you are when you start building your credit, the more likely you are to make some costly mistakes that can take years of recovery time to undo.
Building Credit: The Beginning
A lot of credit card companies hunt college students like prey. They offer them large amounts of credit at a high interest rate, no questions asked. If you can sign on the dotted line, you get the card. These card companies set up tables on campus and send out tons of “pre-approved” junk mail offers in the hopes of snaring a fresh faced 18 year old who will undoubtedly run out and buy something frivolous because suddenly they think they have money to burn.
Don’t fall victim to these predatory creditors, no matter how old you are when you decide to start building your credit. The best way to start building credit is to go slowly. Opt for a card with a relatively low credit limit or, even better, a store card.
Store cards are great because they can only be used at one specific store and usually include a few store-specific perks. For example, according to Natalie Cooper, “One of these options is the Walmart credit card. This credit card offers a wealth of features that center around providing customers with card benefits, just look up a Walmart Credit Card Review and see how they have built this card to be very beneficial to the user.” The store card doesn’t charge any annual fees and offers cardholders a discounted rate for gas bought at Walmart gas stations. The card can also be used to withdraw cash at the time of purchase, but be careful here, cash withdrawals add up and are harder to track!
Maintaining Your Credit: Tips from the Pros
It is important to get into the habit of maintaining your credit from the moment you open your first account. Here is how you do that:
- Always pay more than the minimum amount due. The minimum barely covers your interest charge so if you don’t pay more, you’ll never actually pay down your balance. Aim for the minimum amount due plus your interest charge to really make a dent
- Always pay on time or, better yet, early. Set up reminders to pay your bills a few days before their due date. Better yet, set up automatic payments either with the creditor directly or through your bank’s bill pay service.
Bad Credit: What to do if Disaster Happens
Sometimes life gets in the way of our better intentions. It happens even to the best of us. What matters is that you not hide from the situation. Bad credit stays on your history for years. This isn’t something you can just ignore for a couple of months and then move on.
As soon as you feel your control over your credit start to slip, contact your creditors. Explain that you’ve hit a rough patch and ask for their help. Most companies are more than willing to reduce monthly payments and interest rates if you’ve been a good customer in the past.
If the situation is really dire, consider hiring a professional to help you out. Make an appointment with a credit counselor (there are a lot of non-profit credit counseling agencies that will help you for free) and run an audit on your finances and credit situation.
Work with your counselor to set up a budget and a payment plan for your debts. If your debts have become voluminous, your counselor might recommend debt consolidation or even bankruptcy. Try not to panic. Neither of these situations is the end of the world! What matters is that you take action to repair your situation instead of running from it.
Finally know that, even if you do have a run of bad luck, credit can be repaired. It takes time but you can still enjoy a high score if things go bad. As with most other areas of life, though, it’s better if you take steps to ensure success from the beginning.
Photo courtesy of: jarmoluk
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