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A good credit score will make your life a lot easier; it will help you qualify for loans, apartments and even jobs. But you’re not born with a credit history. Much like you have to spend money to make money, you need to borrow money to prove you’re good at borrowing (and paying back your debts). In fact, according to Nationwide, credit scores help insurance companies predict future losses. So, how can you start your credit-building journey? Here are ways new cardholders can build credit.
Your credit score is woven into almost every area of your life. “Crummy credit can cost you a fortune throughout your life,” explains Matt Schulz, chief credit analyst at LendingTree. “It’s as simple as that. It’ll lead to higher interest rates and fees on mortgages, credit cards and loans. It can keep you from getting the apartment you want. It can lead to higher insurance premiums. It’s a big, big deal.”
There are two main types of credit scores: your FICO Score and your VantageScore. Most lenders review your FICO Score when making a financing decision. It ranges from 300 to 850, with a “good” score starting in the high 600s. It’s calculated based on a variety of factors, including payment history, credit usage, the length of your credit history, and more. The VantageScore follows similar metrics but focuses less on payment history, allowing scores to be generated faster than FICO. Regardless of the type of score, a proven record of responsible borrowing shows lenders that you’re more likely to pay back your debt, and then they can offer you lower interest rates and charge fewer fees.
Related Read: 7 Unexpected Benefits of a Good Credit Score
Chris O’Shea is a freelance writer whose work has appeared in GQ, NerdWallet, Esquire, New York Magazine, and more.
April 30, 2024
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April 30, 2024
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