To many of us out there, the world of credit and finance is a bit of a mystery. That isn’t to say that we don’t want to learn more, but rather, that the resources available to us are somewhat limited. It isn’t always easy to find the info that we want or need.
Unfortunately, our education system doesn’t really prepare us for this stuff either. So many of us have to take matters into our own hands because of this. There are even analyses done on this fact, one of which you can check out here: https://rss.onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-985X.1997.00078.x It’s a shame, but the internet has given us a few more avenues to pursue our knowledge.
Credit Scores: A Rundown
The misunderstandings run as deep as many people not fully understanding what “credit” is in the first place, so we’ll start here. Put in simple terms, credit is the history of our own transactions and track record as far as borrowing money and paying those debts back goes (as well as fulfilling any bills).
Why are they such a big deal, then? Well, any time that we’re looking to make a large purchase like buying a home or a car, the financial institution that we’re applying for a loan with is going to be looking at our credit scores. It tells them about our trustworthiness with borrowed funds, at least to an extent.
What Should We Know?
As you probably are already aware of, finances can get pretty complicated. Everyone has their own circumstances to contend with, and that’s why being able to raise your credit score isn’t always a walk in the park. That said, there are some ways that you can do it even if you are somewhat pinched on your budget right now.
Pay Your Bills on Time
The biggest tip that we can offer is to make sure you’re getting your bills paid. Anything from your rent to your cable bill to your phone bill can net you a few points in a relatively passive manner. After all, it’s not like this requires you to do anything new outside of what you’re already doing, right?
Get a Credit Card – Responsibly
Next, there’s the matter of credit cards. Now, a lot of people hear about them and get nervous (or perhaps a little too excited). They offer us a way to build our credit scores, but also the potential to sink them into ruin, so they definitely require some caution.
Most importantly, we have to remember that when we have one of these cards, we can’t treat it like free money. Read more about that in this article, if you want to know why it’s such a big deal. How can we use them to build credit, then?
Essentially, the way it works is that you make a small purchase using the credit card like filling up your gas tank. Then, you pay off that balance before the payment period ends, thus preventing any interest from accruing while boosting your on-time repayment history. Over time, this is a reliable way of steadily improving your score!
What Else Should We Keep in Mind?
Now, the world of credit is pretty complex. There are always going to be a lot of moving parts at once. Don’t worry if you don’t have the highest score right away – it takes time to grow. When you first enter adulthood, you’re automatically considered “average” with your score because they simply don’t have enough data to go off of.
So, when you’re in that space, it’s time to start thinking about the type of financial future that you want to build for yourself. Consider reading some advice books or columns and speak to an advisor if you’re uncertain about what you’d like to do. We’ve offered some advice on the good places to start, at least, so hopefully that’s been useful for you!
As long as you are careful about the debts that you incur and aren’t borrowing out of your means, then you should be able to grow your credit score without too much stress. Debt is a natural part of many purchases these days, at least for most of us, so it’s nothing to be ashamed of.
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