Picture yourself in a big house with an amazing car. It starts with your credit score.
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Know how your credit score works.
Building and maintaining a good credit score honestly isn't that complicated, once you know how it's calculated. Your credit score is what will allow you to rent an apartment, get a credit card, and of course, save you serious cash when you get a loan for a house. The score goes from 300 to 850, and there are five parts:
1. Payment history (35% of score): How on time you are with payments for your credit card and other loans. Pay on time, your score will go up big.
2. Amounts owed (30% of score): How much you owe versus how much credit you have. So if you have a $1000 limit on your credit card and only owe $50, that's helping your score take off.
3. Length of credit history (15%) of score): How long your accounts have been open, so simply just having a credit card in your wallet will help your score reach new highs.
4. Types of credit in use (10% of score): The types of credit you have in use, like credit cards, and other loans like student loans. So if you've been working to pay off that Sallie Mae loan, you can at least know that's it's helping your score.
5. New credit (10% of score): How many new accounts you have open. Your score takes a temporary hit every time you open a new credit card, but it falls off in a year and your score bounces back.
It breaks down like this: Always pay your credit cards and loans, and don't see your credit card as a ticket to shopping sprees. Responsibility will have your score will go up in no time, and you'll save money when you want that new ride or big house.
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Start with just one credit card to build your credit.
While it seems like a great idea to have a bunch credit cards ready to go for a Saturday at American Apparel or the Nike Store, the start to a great credit score begins with using one — and only one — card. Starting with one card and paying it off well will build your score for future credit card applications and loans, and you're just less likely to accidentally miss payments or go beyond your available credit limits.
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Always avoid store credit cards.
It can be pretty tempting to sign up for a store credit card when you know you can get that $10 reward with your Victoria's Secret haul or 15% off at Macy's, but you should avoid them if there's any chance you won't remember or be able to pay off your balance every month. Those store cards carry really high interest rates and fees, which can turn that $50 coat into a $200 one in no time.
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