There comes a time in every adult’s life where they want something and they can’t afford it. As profound as that may or may not have read to you, that is why every individual has this beautiful exotic thing called a credit score.
Yes, I meant exotic because there is nothing more exhilarating or sexier than being able to get almost anything at the swipe of a card or the push of a black pen. But, with great power comes great responsibility, young Jedi (Uh, Yoda said that right?), which is why I’m about to give you the 411 on how not to have a 411 on your credit report.
What is a Credit score?
So, what the heck is a credit score? According to WalletHub’s website, a credit score is an articulation of numbers that calculates your likelihood to repay any debt. Think about your shady friend (It’s okay, I won’t tell them that they’re your shady friend). If they have a reputation for not giving back the clothes or money people loaned them, you’d probably not want to let them touch your new Fendi bag, right? Well, credit agencies work the same way, so think of your credit score as your street cred’.
Now that you understand what a credit score is, I already have some bad news for you. You have to establish credit before you can raise it. There are a few different ways on how you can establish credit. If you’re a student, student loans will actually establish you some credit and enable you to get a student credit card. If you’re not a student, you can use methods like getting a car note, a credit-builder loan, or a secured credit card that uses the amount you deposit as your credit limit. For a more exhaustive list of methods, check out this list made by Nerd Wallet!
What is a Line of Credit?
It’s now officially the time! Drum roll, please…
Now that you know what a credit score even is and have a full-proof way of establishing credit, let’s talk about how to get you the perfect score! In order to do this, there is one more term you need to know, line of credit. According to Credit Karma, “A line of credit is a preset amount of money that a bank or credit union has agreed to lend you (Porter, 2019).”
Basically, your line of credit is the sweet spot that will make your credit score shoot through the roof! Most people think that their credit scores will get higher as long as they make their payments on top, but that ain’t it, Chief. The more open credit you have, the higher your credit score will be.
Here is one more tip, a good place to be is to use 0-9% of your open line of credit. So, if your first credit card has a $500 limit, you should try to keep the amount of money you spend on it below $45. For more information about lines of credit, you can check out this blog created by Credit Karma.
What are Soft and Hard Inquiries?
Whew! You’re on your way to amazing credit, but there are a few housekeeping rules you need to know before you go. According to US News’ website, “When you apply for a credit card, the credit card issuer will ‘pull’ your credit report from one of the three major credit bureaus. This is a hard inquiry (Harzog, 2018)” Too many hard inquiries will bring your score down, but they will start to fall off as years pass.
A soft inquiry might show up on your credit report, but it will not lower your score. For example, seeing if you prequalify for a credit service or even you checking your own account are considered soft inquiries. That differentiation is why it is always good practice to ask credit bureaus or services what type of inquiry they are drawing before you let them do it.
Here is a small list of types of things that you might not know will put a hard inquiry on your account:
- Leasing a phone
- Buying a car
- Leasing Furniture
- Renting a house or an apartment
What is the Best Way to Monitor Your Score?
I know you’ve watched the Credit Karma commercials. Credit Karma is completely free and does exactly what you need it to do. It will monitor your scores, suggest ways to help you raise your score, and it will suggest credit cards and different loan methods based on your score.
Also, most banks and credit card companies will also monitor your score, so you can always try to contact your used establishments and ask them if they have those services free to use. That being said, HERE is a full list of the best sites to check your credit score on.
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