First of all, this is something that is very near and dear to my heart in my journey to be an adult. Finances are so important and no one bothers to tell you anything about Credit. You know that its there, like some mythical creature, but you have no idea where to find it or what to do with it. To this day credit stresses me out, even though I have been bringing my score up to “Good” for 2 years.
So I’m going to teach you what I learned the hard way like so many other people did about credit.
Why Do You Need It?
First of all, credit isn’t about money. Credit is about showing banks and companies that you are reliable. They want to know that you make your payments on time and keep some credit set to the side. This is what you need to make big purchases like a house, a car, hell even a new laptop like the nifty new Mac I’m typing on right now. Most people can not pay for big purchases like these outright so credit is showing a bank that you will be able to pay them back.
For so so so long I thought that I was being responsible. I thought that paying for things outright instead of spending money that I didn’t have was the responsible thing to do. Then I got married. He hadn’t had the same mindset and my credit TANKED. I thought that just by paying things off and not getting new cards or accounts that I was being responsible. So So So wrong and naive.
Not only will you need it for buying things in the future and proving that you pay your bills, but landlords and some employers even check credit.
I’m not saying I agree with it but you do need to have a few accounts open (And following the rules I will lay out next) to make sure that you have good credit.
Basic Tenants of Credit:
Have a few accounts: Having a few with only a little used in each one actually makes each individual one have less impact.
Keep It under 30% usage: On each of your accounts. Pay down to 5-10 % every single month.
Do Not Close Accounts (if you can manage it): Sometimes its unavoidable, like when I closed my ex and my joint credit card. But when you close an account, you lose all of the history from that account. And like I said before, thats what Banks are looking at.
Avoid Inquiries: Make sure you aren’t just applying for cards all over the place. While that Gap employee tells you about the card casually, every inquiry on your account can cost you. Inquires disappear after about 2 years. To avoid unnessicary inquiries, try a free app like Credit Karma.