What Do Teens Need to Know About Credit?
Good credit is the key to a solid financial foundation. A good credit score can make it easier to finance the big expenses in life. It can help you secure a loan for school and a car, often at a better rate than someone with a low score would receive. A potential employer or landlord may also consider your credit history before hiring you or renting you an apartment.
WHAT IS A CREDIT SCORE?
A credit score is a number ranging from 300 to 850 that represents an individual’s creditworthiness and is used to determine their ability to pay back debt. Generally, a score of 650 or higher indicates a good credit history.
A credit score is calculated using these factors:
- Payment history
- Amounts owed
- Length of credit history
- New credit
- Having different types of credit, such as credit cards and loans
WHAT IS A CREDIT REPORT?
A credit report is a detailed breakdown of money owed, such as an auto loan and credit card debt; payment history including late payments; employment history; and who has accessed your credit report – that could include financial institutions, utilities, a potential employer or landlord, and collections agencies. Your credit report does not include your credit score.
HOW CAN YOU BUILD CREDIT HISTORY?
Get your name on a loan – like an auto loan with a co-signer or as an authorized user on your parents’ credit card – and make your payments on time. Usually, six months’ worth of payment history is enough to generate a credit score.
- Pay all bills on time – not just loan and credit card payments, but also monthly bills like your cell phone service.
- Keep your credit card balances low – try not to use more than 25-30% of your available credit.
- Don’t apply for credit too often. Credit check activity can have a negative impact on your score.
- Pay all bills and fines. A parking ticket or library fine can impact your credit if they are reported to a credit agency.
- Check your free credit report at least once a year to make sure there are no mistakes. Visit www.annualcreditreport.com.
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