If you are just getting started building your credit score, your parents are a big help. Here are the steps:
1. Open a checking and savings account at your parent's bank or a bank that is convenient for you to school or work. We suggest starting with your parent's bank for easy transfers of funds between your accounts. Your parents may also have personal relationships the bank that can help you get started.
2. Open a Savings Account - Set a dollar amount that you can save every month and put the money in your savings account. This has to be money that you have earned, not advances from your parents. If you are working 20 hours per week, $50.00 to $100.00 / month would be a great start.
3. open a Checking account - Your checking account will be for spending, applying for any loans, making credit card payments and your daily purchases.
4. Once you have your first part-time job, apply for a No Credit History credit card. This link will take you to a listing of credit cards that are for consumers with no credit history. If you do not have a job, don't apply for a credit card. If your parents are giving you money to make the payments, you will not learn anything from the process. Your first credit card is a great opportunity to prove to your parents your trustworthiness. Only purchase what you can afford with this credit card and pay it off by the end of the month. This process is the start of building a credit rating and understand monthly financial responsibility.
5. You have to be responsible for this credit card. If you are planning on going to university and applying for student loans, your parents will be cosigning with you. 90% of student loans are co-signed by parents. This credit card is your opportunity to prove to your parents that you can handle credit and not overspend. You can set up the credit card for auto payments from your checking account for the minimum balance. Call the credit card company to set this up. You will never be late with this service in place. If you have paid the card off or you're not carrying a balance, you will not be paying anything for a minimum payment and in case you forget, you're covered.
6. If you have a habit already of overspending, only use a debit card until you have your spending under control. This type of card has no credit available. You deposit cash in your checking or savings account and spend the money until it's gone, then you reload the card with cash. When you get your spending under control, look at a credit card again.
7. How young were you when you got your first cell phone? This is a great way to build credit. Get the cell phone bill in your name and you pay the bill (even if your parents are giving you the money) every month. You can also track your own usage and see when you've used too much data and have to give your parents money to cover the overage cost.
What Makes Up a Good Credit Score
- Paying all of your debts on time. Place your bills on auto-pay to make sure they are always on time.
- The amount that you owe on all outstanding debts. This will be used in a debt to equity ratio showing your ability to repay the debt.
- How loan you've been taking loans. The more time the better.
- The credit mix makes a difference. A simple example of this would be having a credit card and a personal loan.
- How much of your available credit that you are actually using. The lenders do not want to see you maxed out on available credit. This makes up 30% of your credit score so you need to get this right. the recommended about of credit usage is 30%. If you have a limit of $1,000., only use $300. of the limit.
- How often you apply for credit will also affect your rating.