Here's the deal with a credit score

Based on what everyone says, I'm sure that you've picked up that having a good credit score is important.

Here's why:

1. You'll have an easier time renting an apartment and have more housing options.
2. It's cheaper to borrow money. Think mortgage for a house or a loan for a car.
3. You can get credit cards with perks, benefits and bonuses.

Whenever you make a big purchase/ take out a loan (think a mortgage for a house or a loan for a car) the lender will check your credit score. A credit score is the worlds universal way to make sure you're responsible and can pay the loan. It's a rating.

There are two important factors to have a good credit score, growing it and then maintaining it.

Growing your credit score

1. Opening a credit card.

The only way for you to to have a good credit score is to prove that you're reliable. That's why you need to open a credit card. But to open most credit cards you need to have a high credit score. Isn't that a catch 22? There are some cards though that will take you even if you have a low credit score (which is the default). Here's a link to a great starter card I recommend. You can also check out more student cards here. Most people get accepted for it and there's no yearly fee. After you have this for six months and built up your score you'll be able to move on to cards that have more benefits. Here's a great second card.

2. Making all payments on time.

This is how you prove that you're reliable and get a higher score. I keep my cards and bills in auto payments so that nothing will happen if I forget to pay. Just make sure that you check your credit card bill every so often to keep track of your spending and make sure that there's no fraudulent charges.

3. Keep old accounts.

Having older accounts looks good for you. Sorta how having the same friends for a long time shows that you're nice, normal and can keep a relationship. So never shut down your first credit card. Just keep the account open even if you don't use it.

4. Become a credit card authorized user.

This is mainly aimed at people under 18 who are too young to get their own credit card and manage their score. Becoming an authorized user increases your credit score as long as the credit card holder makes their payments in time and doesn't keep a high balance. Ask a responsible adult to add you as an authorized user.

5. Avoid credit applications.

Anytime you apply for a loan your credit score is checked. Having too many of these application looks bad and lowers your score. So wait a few months after opening your first card so that you don't get declined and only apply for cards when necessary.

6. Keep your credit usage percent low.

Ask your card issuer to increase your limit. Doing this means that your credit usage percent will be lower which can help increase your score.

Or just keep your spending low.

7. Don't carry a high balance.

Carrying a high balance means having a balance that is close to your credit limit. Meaning if your credit card has a credit limit of $5,000 try to only put 30% of that on the card. Even if you pay the card on time, using all the available credit will lower your score.

Maintaining your credit score

Credit Monitoring

Let me introduce you to Credit Karma. Credit Karma is a free app (it can be viewed in the web too that tracks your credit score and notifies you of any changes. It's a great way to catch fraud too, as they'll let you know if anything new is being linked to your name or social security number.

Sign up to Credit Karma here.

What's a good score?

Your credit score can go up and down, depending on your lifestyle and the choices you make. Sometimes, like after you take out a mortgage, your score will be lowered temporarily. However, here's a quick frame of reference:

580 to 669 are considered fair

670 to 739 are considered good

740 to 799 are considered very good

800 and up are considered excellent.

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