Credit Score Management

Building a excellent credit history is one of the most vital things that young people can do to help set them up for success in the future. Many people underestimate the importance of excellent credit early on in their youth, and then it becomes too late to fix. Although it can take years to build a solid credit profile, it can take less than a day to ruin one. This is why it is so vital to not only know credit score basics, but also to actively apply a few solid principles to help you maintain a excellent credit score. To help you, we’ve assembled this brief guide to understanding and applying credit score basics.

The first thing that you need to know about credit is that there are three different agencies, Experian, Equifax, and TransUnion, that lenders use to measure credit history. Although each of these has their own scoring system, the most commonly used scored is the FICO credit score, which is rated heavily in Equifax’s favor. The FICO score is the #1 way for lenders to get a picture of your credit profile because it is the most complete and comprehensive of the bunch.

Now, there are several factors that go into making a credit score. One of the first things you will experience as a person in your late teens or low twenties is a lack of a credit history, which does not benefit you, but does not hurt you nearly as much as terrible credit does. You are far better off building credit slowly and building history in the process then you are going too quick and risking a terrible account. With regard to the overall score, history makes up 15% of your FICO score. The amount of inquiries you have also accounts for 10% of your FICO score.

Many people claim that inquiries are a huge determining factor when it comes to credit score, but the truth is that although they are a factor, they are not nearly as vital as paying your bills on time and keeping low credit balances. Speaking of balances, if all of your credit cards and loans are maxed out, then you will have a much lower credit score than you would if you maintained a lower balance. Having a high balance shows that you are over using your credit, which is generally frowned upon by lenders. This makes up 30% of your score, so tread carefully.

Lastly, paying on time is one of the most vital things that you can do to keep a excellent credit score. This is the largest factor and accounts for 35% of your credit score. Obviously, paying your bills on time is the largest indicator of how you are doing financially, so this makes sense. The last 10% of your score has to do with the type of debt you have, whether secured, unsecured, revolving, and other types such as consumer debt.

As you can see, your credit score is comprised of several factors and although you can get away with a few slips every now and then, your best bet is to start building a excellent credit profile as early as possible. Pay your debts on time and avoid maxing out your credit cards and overspending. If you do these things, you will find that you’ll have a fantastic score by the time you need it.