When you hear credit score you probably think of the Credit Karma commercials that played on repeat for years. Check your credit score! It’s free! Sign-up today! The good news is that Credit Karma is free, it does help you check your credit score, and moving into adulthood, it’s a good free resource to have. From one loyal Credit Karma user to a hopefully soon to be new one, get on it.
Your credit score will be dependent on many different factors, some of which you won’t have control over:
1. Credit Card Utilization
When people hear credit score, they immediately think of credit cards. They’re a quick and easy way to get your credit score off the ground but they have a Catch-22. You can’t get approved unless you have a credit score. Keeping your credit use below 30% is optimal for positive marks on your score. Anything higher should be taken care of sooner rather than later.
2. Loans (Auto, school, other)
Loans? Did someone say loans? Almost every single person who’s been to college knows too much about student loans. There are others as well like an auto or personal loan, but student are the most prominent. Loans work like credit cards. The more you have, the worse it’s going to look on your score. As you pay them off you’ll see your balance go down, a possible increase in your score, and a thumbs up from Credit Karma (who doesn’t like positive affirmations?).
3. Collections
If you don’t pay your bills this is where they are sent. After a while, the business trying to get money from you will provide your account to a collections agency that contacts you instead. In an attempt to get you to pay they’ll offer discounts on the invoices, but these have a limited availability before they start requesting the full amount again. Debt collectors can be more ruthless than a normal agency so avoid getting involved and pay on time.
4. Age of Credit History
While getting a credit card at the ripe old age of 18 can be a bad idea, sometimes it’ll show off to your advantage as you get older. Lenders typically like to see that you have experience using credit responsibly. This is one of the only categories that you start in the red and work into the green. 7-8 years is the minimum amount of time to have an open account before going into the green.
5. Payment History
Pay your bills on-time no matter what they are. Especially credit card and loan payments. Making on-time payments is a good sign for lenders that you can reliably make payments. Consider it like giving money to a friend. You wouldn’t loan them $5 if they never paid you back, so why would lenders give you money if you notoriously pay back late?
6. Derogatory Marks
These are the consequences of not paying your bill on time. If you have to be hunted down or billed continuously it’ll play back as a derogatory mark on your record. Be careful because these can stay on your report for 7-10 years.
7. Total Accounts
Like age of credit history, this is another category that starts in the red and has to be worked into the green. Lenders like to see that you’ve used a variety of accounts responsibly. Like diversifying a business portfolio, you’re diversifying your credit history. 11-20 is the minimum amount of accounts before going green.
8. Hard Inquiries
This is what to expect from applying for a credit card or even from some billing agencies like your electric or Internet provider. A company wants to check your account and scour it to make sure you’re a responsible consumer. They can stay on your report for up to 2 years, but their effects tend to fade over time. More than 2 hard inquiries can be bad for your score.