Every year, Muhlenberg hosts a weekend event called “Reality MC” to endow seniors with essential life skills such as cooking, networking and managing finances. The event made me realize my utter lack of financial knowledge. My starting point? Learning about credit scores. Did you know that you’ve had a credit score since one was automatically generated on your 18th birthday? I sure didn’t! After hours and hours of research, I present to you: “7 Things I Wish I’d Known About Credit Scores”.
1. Your credit score indicates how financially reliable you are.
It is a number between 301 and 850. Essentially, you want your number to be as high as possible. A low number makes you look like a financial risk(!)
2. You need a (good) credit score for the most basic things.
Your credit score is reviewed whenever you apply for a credit card, car payment plan, apartment lease, insurance, cell phone contract and even sometimes a job! A low score indicates that you’re financially unreliable, which makes a company likely to charge you higher rates or reject your application entirely.
3. You don’t start off with good credit.
You start with a mediocre number and have to build up. Any student loans you’ve taken out have already impacted your score. Another scoring factor is the average age of your accounts, which creditors want to be over two years old. This means it’s best not to learn about credit a few months before you’ll want to lease your first apartment. (Whoopsie)
4. Don’t make more than one credit-related application within 91 days.
Each time a creditor accesses your score, your credit is actually impacted. Your score report shows how many credit inquiries have been made about you within the last three months. Multiple inquires make you look desperate, which means you’re less likely to be approved.
5. Only use about a quarter of your credit allowance.
If you have a Visa with a $200 limit, it will lower your score to spend more than fifty or seventy-five bucks on it. Using too big of a percentage makes you look credit-reliant, which again makes you look desperate. For this reason, it might be a good idea to have multiple cards.
6. There are many different types of credit cards.
There are cards you can only use at one store (like Target’s REDcard), cards affiliated with one store that you can use elsewhere (like the Chase Amazon card), and general cards from large credit companies (like CapitalOne.). There are also cards targeted specifically to students (like Discover IT and Journey), which are easier to be approved for.
7. Interest rates are crazily steep (typically ~20%).
You want to use your card in order to increase your score, but pay your expenses off by the end of the billing cycle.
I hope that this has made credit scores a bit more accessible. I certainly feel more at ease after learning about them.
Disclaimer: I have no basis of expertise in economics other than extensive personal research. I do not intend to dispense professional financial guidance.