Credit Scores

When you first become an adult, you do not have a credit score because you have no debt. A credit score is how well you handle debt. You may be thinking, well then I do not need a credit score. But how would you buy a house, in the future? Also, many employers have started running credit reports as have insurance companies. So how do you get a credit score without debt?

Sadly, the easiest way has been stopped. It used to be, you got a student credit card when you started college and then a few years later graduated to a regular credit card. As of 2009, you can no long do that, because of the credit card act of 2009. That act does not allow for students to get a credit card without their parents co-signing or having a job with a sufficient income until they are 21. No one, not even the credit card issuers seem to know what a sufficient income is unless you have a full time job.

You could get a secured credit card, but often those have annual fees and you should rarely pay for a credit card. You could ask your parents to add you as an authorized user, if they have great credit but how would you know what their credit score is? If you ask your parents to allow you to be an authorize user, let them know you will no be charging on the card, and you would prefer them to keep the card. Many students rack up large amounts of debt, and it would be unfair of you to do that to your parents.

If you parents are unable or unwilling to take the risk of co-signing, you still have options. If you take out student loans, as you repay them, you will earn a credit score. If you do not need to take out student loan, either because of grants or your parents are nicely paying for school, you would need to wait until you turn 21 to get a student credit card. This means you may not have as high of a credit score when you graduate as with the other options but it should be high enough if you pay on time and in full.

The most used credit score, FICO, ranges from 350-850. FICO uses payment history, the ratio of credit card balances to the total available credit limit, the length of credit history, types of credit used and how many time you request more credit cards or loans. Let's take each part separately, to have a positive payment history, you must pay on time. This also keeps you from getting late payment fees so avoid making late payment at all costs. The ratio of available credit is only referencing rotating debt, like credit cards. To get a favorable position here, do not use more than 10-30% of your credit card available credit. FICO likes seeing both installment debt, like student loans and credit card usage but you can get a very high FICO score without installment loans. Every time you request a new credit card or installment loan, you will get dinged on your credit score, so avoid getting too many credit cards or loans. To get the best rates you need a credit score of 760 or higher except for mortgage loans which you can have as low as 720 and still get the best advertized rate. You do not need to check your credit score though you should check your credit reports once a years to make sure they are accurate.

Once you graduated and been earning an income for about a year, you should start looking at reward cards. My favorite are cash back rewards, such as FIA card services with 1.5%-2% cash back or discover cash back. I have had trouble finding a good Visa or MasterCard cash back credit card but I am still looking.