How To Get Good Credit Score At 18?
If you are about to turn eighteen or have recently become an adult, here is what you need to know about obtaining good credit scores at this age.
It is also important to take your time and work on establishing credit early on since you’ll be using it for the rest of your life. On the same note, being accredited with a high credit score in the thirties enables a person to secure credit cards, auto loans, and mortgages among other things on a better stand. It proves to the lenders that you are capable of handling credit, and this is very essential when managing loans.
There are a few things you can do even before your 18th to ensure that you set yourself up well in terms of credit history. Use this guide to start on the right track and/or to ensure that you maintain a good credit score in your teenage and youthful years.
Go through the Credit Card Basics
The first thing when you plan to use credit is to have an idea of what comprises your credit reports and credit scores so you avoid making the following mistakes.
These include credit reports from the three credit reporting agencies namely Experian, Equifax, and Trans Union which contain information you have recorded with credit, bills you have paid, collections accounts, bankruptcy, and any other financial activity. The data in the credit reference lists is used to assess the credit risk level and the credit score a lender applies.
Higher scores give a message to the lenders that the borrower in question has a good level of crediting and is likely to pay off the loan on time and without interest. The value obtained can be anything between 300 and 850, although based on the FICO and VantageScore models. It is recommended to aim at getting higher scores above 700 to qualify for better loan term offers.
Late payments contribute to the lowest 10 percent of your scores 35 percent under the FICO model, so ensure that all your loans’ payments are made on time. This shows how more than half of your score is made up of your debts or the amount of debt that you have taken. Maximum balance to never exceed 10 percent of allowable credit limits. The following are the other factors: length of credit history which is 15 percent, the kind of credit which is 10 percent, and new credit is also 10 percent.
Become an Authorized User
If you are not yet 18 years old and can legally apply for the accounts in your own right, make an effort to explain the situation to your parents, other reliable relatives, or friends and ask them to include you as an authorized user to one or several of their credit cards. The card given to an authorized user is in the user’s name, but it is connected to the primary cardholder’s account.
Their primary users’ strong payment history will start populating your credit reports which in turn will create your credit score. Late teen years up to current: 15% to 25% of the FICO score is derived based on your entire credit history, so having timely payments since your early teen years will highly increase your score as a starting point.
The only thing that you need to consider is the non-usage of the first cards by the main account holders to make timely payments and not exceed the credit limit. They might also damage your credit right from the onset if you are in a group. Lastly, when you are applying for your credit accounts in the future, cut down on the dependency on other’s payment histories by maintaining your AU status on only one particular card that has an impressive credit history.
Open a Secured Card
A secured credit card can be a perfect solution if you have no credit history, and you want to create one. Secured cards work the same way as ordinary credit cards, except that you are required to provide a cash security deposit You have to make at the time of getting the card which is similar to your credit limit. This makes issuers confident enough to extend credit limits to people with no credit history.
When you apply for a secured card, you should use it as you do with a debit card but the difference is paying a few dollars and fully paying it before the due date. Timely payments will contribute to this and gradually the credit scores will start improving. Generally, you should not charge more than 30 percent of your limit monthly. In cases where the card issuer deems that you have been using the card responsibly, they may after one year, refund your initial deposit and upgrade your card to an ordinary, unsecured credit card with a higher credit limit.
To select your first student credit card, try to find one that doesn’t require you to pay an annual fee. I can recommend the Discover it Student Cards and Bank of America Cash Rewards Card. It is also important to compare the terms of different lending institutions to get the best rate.
Open a Student Checking Account If you are a student, you can open a student checking account at any bank of your choice.
It is also very useful for building credit when you are just beginning to establish one since a checking account can help build credit. Some banks even include student checking accounts that include a small-limit credit card with the account.
For example, the Wells Fargo Wells Fargo Cash Back College Card currently has a $500 credit limit and is eligible for earning. It does not ask for credit checks or deposits which are common with other websites. Graduate to a standard Wells Fargo credit card after the student card once you successfully demonstrate reliance, such as paying for the student card on time.
A student checking account also has the means of providing a steady source of direct deposit income as well as building a relationship with the bank for other loan requirements.
Avoid Credit Score Myths
Contrary to what many people believe, attributes like income and wealth do not affect credit standing. Your scores also appear equal regardless of issues such as your color, civil status, geographical location, interest rates you attract, or whether you have been tracking your credit report.
Other types of scams include those where lenders offer to assure credit approvals or, in other words, great credit score outcomes for a price. No one can legally guarantee that one will get any particular score or have deleted the disheartening yet truthful information. Be careful of the scams which look like very attractive and attractive deals. There is no solution to bad credit ratings that allows for quick fixes. Only consistent efforts towards good financial behaviors will change your scores for the better.
Get Info from All the Three Bureaus
The Federal Trade Commission states that you should pull at least one credit report every 12 months from each of the credit bureaus namely Equifax, Experian, and TransUnion. The traditional way of getting your free annual credit reports is through phone, mail, or via the internet at the website annual credit report. Com and this will not affect your credit score. Review all three because errors or fraudulent accounts may appear on only one or two of the reports but be missed if all three are not reviewed.
If there are any such entries like accounts that do not belong to you or payments that were not made by you, which are reflected on your credit reports as such, it is time to dispute them and the first step towards it is the process laid down by the credit bureau in question. It also means that correcting mistakes can help increase your results.
In addition, it is also important to know that it does not harm your credit score when you check your credit reports and this is an illusion that many people have. A hard inquiry that can even decrease your scores for a short time is only done when a lender pulls your credit report while considering a loan request.
Pay Down Debts
Having high balances on credit card accounts can greatly negatively impact individuals’ credit utilization rates and credit scores. It should be possible to avoid having a monthly balance over 10 percent of a card’s limit on each and overall card. Therefore if your card has a credit limit of $1000, it is wise to keep your balance below $100 or after you have paid your monthly balance.
Try to pay more than the minimum in case, and, for sure, it is inadvisable to pay only the minimum amount in the long run as the amount will rise continuously. If it is not possible to clear balances on cards, it is advised that one applies extra payment to the card that has the highest interest rate. Then it is appropriate to transfer the balance to the next card with the highest rate and continue the process until all the cards are cleared.
Consider Adding Installment Loans
Home and auto loans do not help in credit score until you start paying back the credit, but another type of installment loan named personal loans can help improve the credit score once you turn 18. There are quite many online lenders such as Upstart and SoFi offering personal loans with fixed monthly payments of principal plus interest and the contracts usually run for a period of two, three, four, five, or even seven years.
The interest rate that is charged on good credit personal loans could be lower than the interest rate charged on credit cards. Repaying an installment loan proves to the credit providers that the borrower can manage the various forms of credit other than cards only.
If you receive approval for your first personal loan, do not borrow a high amount initially; instead, you can try for a few thousand only. Pay all the payments on time for the decided loan duration. Once the initial personal loan is paid off, one can again apply for a better personal loan for a larger amount if one requires more funds for a large purchase in the future seeing that he or she has a good credit record.
Live Below Your Means
The concept of maintaining good credit is, therefore, one in which you should spend less than what you earn every month. Create an emergency cash stash of 3-6 months of living expenses to ensure that you’re able to pay for food, rent, childcare, and all the rest, should you find yourself out of work through no fault of your own, including through illness, injury, or car trouble. One should not rely on credit cards to fill gaps as this is a bad thing to do.
Set down achievable goals and ensure that the expenditure on wants is secondary to the expenditure on needs. It is recommended to take an automatic approach to saving by depositing a portion of your paycheck into your emergency as well as your other savings such as the retirement savings account before buying things you want. Saying no to the fancy things that you do not need is going to leave you with more money to clear bills and make other forms of payments.
Be Patient
Last but not least, it is equally important to understand that developing a good credit score is a gradual, steady process that requires time and commitment. Do not attempt to avail of credit products simply to boost your score for they will only lower it instead. Save your money and spend it wisely, and as you undertake different types of credit, you will notice your credit score improving.
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