Understand Credit, Win at Life
Let’s be real, talking about your credit score can be a huge headache at times – “do this,” “don’t do that,” “that is going to hurt your score.” I can literally write a whole essay on how credit works and how it can affect your everyday and future decisions, however we all know no one has time for that. Now, I didn’t realize how big of an effect my credit score would have until I graduated high school, and went off to college.
First things first, what on Earth is credit? Basically, it’s a score that tells lenders how responsible and trustworthy you are when it comes to lending you money. Your credit score helps determine the level of risk a lender is willing to take when letting you borrow from them. The higher your score, the lower the “risk”. Get me?
Now that we got that out of the way, here are 4 things you should probably know about your credit.
- You technically have more than 1 credit score
Yup, you read that right. See, there are three credit bureaus; Equifax, Experian and Transunion. These bureaus calculate your credit score using five factors; payment history, inquiries, types of credit, length of credit, and credit usage. Depending on which bureau the lender reports to, will result in your credit score. So don’t freak out if different lenders give you a different credit score when shopping around for a loan, they probably use a different Bureau. You might have also heard of something called a FICO score. Your FICO score is the average of your three scores from each bureau.
- Your score affects the interest rate you receive
Want to buy a car for the first time? Maybe a house one day? How about a credit card? Well, you better pay attention to your credit score or else you can be spending a lot of money. Remember the interest rate is the percentage of money you will be paying to the lender in addition to the amount you borrowed, less is better. Normally the higher your score the lower your interest, and vice versa.
Don’t freak out guys, when you are just starting to build your credit it is totally normal to have a lower credit score and a higher interest rate. The longer you have credit, and manage it responsibly, the better your score will get.
- It can affect more than just your interest rate
Did you know some employers check your credit report?! Whoa! Since your credit report technically tells people how “responsible” and “trustworthy” you are, it can help employers make a decision on hiring you. If that doesn’t seem like a big deal, when I was in college my friends and I were trying to find an apartment together. We found the perfect apartment (right across the street from campus!) but little did any of us know, they needed to check our credit report before us signing a lease. Luckily our parents were nice enough to help us out with their credit, since we didn’t have any established.
- Get a free copy of your credit report
Did you just say FREE!? Yep. You can get a copy of your credit report for free annually from each of the 3 credit bureaus. Unfortunately, to see your actual credit SCORE, they might charge you, but all you have to do is go onto www.annualcreditreport.com, enter you information and BAM you’ll get your report in minutes! Remember, it’s a necessity for you to look at your credit report to ensure there is no fraud and that all loans/inquiries were made by you. If you suspect any fraud, you can dispute it with the credit bureaus you got the report from
Not that bad right? Knowing these things will hopefully help you make better decisions when it comes to dealing with your credit. Obviously credit has a big impact on you, the more you know about it, the better! Best of luck you guys!
Do you have any advice for the Twentysomethings out there? LET ME KNOW! You can email me here.
Foothill Credit Union is a full-service credit union with California branches in Arcadia, Covina and Glendora.