So…since the first post on money had a part 1 I feel obligated to at least post a part 2 and here it is.
Based on my previous post it may sound like I don’t support credit, but I totally do. There have been many times that I wish I understood credit a lot better growing up. You know what they say tho, hindsight is 20/20. The best tip I can give is to stay informed. That being said I’ll cover some areas in credit that I wish I understood better growing up.
1. Credit Scores
Here’s the thing. I didn’t know much about credit scores till way later in life. And even now they’re somewhat of a magical black box. There are 3 main companies that give scores that people care about: Equifax, Experian, and TransUnion. They each have their own proprietary algorithm, but tend to score pretty closely. There are many factors that affect credit scores like credit history, available credit, and % of credit left over/used.
Tip #1: Try not to close credit lines, especially if they’re your oldest credit card. I closed my student credit card during my college years not knowing it would have a negative impact. This hits you in two ways. One, if it’s one of your older lines you’ll lose some history. Two, your total available credit will suddely drop. Just cut them up and keep the lines open. By doing so you’ll also keep the % credit used lower which also helps.
Tip #2: Avoid bad credit history. This means pay your bills on time. Yea not super genius right? It’s simple, but really important. Negative info will stay on your credit history for 7 years. If something like an unpaid credit line is tainting your credit score it’s sometimes worth trying to contact the company directly and paying them the amount owed to try and get it off your history. Your mileage may vary. That leads into the final Tip.
Tip #3: Know your credit! This is probably the most important tip, especially nowadays with all the id fraud. You can check your credit report for free once a year from each of the big 3 agencies here and no it’s not freecreditreport.com like that catchy commercial says. The suggested way is to spread them out over the year to keep an eye out for mistakes. Note that you get your credit history, but not your score. The scores you’ll still have to pay for.
2. Loans
I used to think they were all bad so I didn’t take advantage of any of the lower interest loans available to me during college. It was only after I graduated and understood more about how those loans worked did I see a missed opportunity. Lucikily my brother and sister were able to take advantage my new found knowledge and lock in those low rates. Loans can also be a chance to create a history of good payments that will help your credit score, but it’s a bit of a double edged sword as you’ll now have some debt being calculated into your score. With some loans the interest is also tax deductible here in CA (I know that student and mortgage loans are structured that way). The only takeaway here I guess is to not write them off right away, but consider the rates and opportunity cost.