What is credit? How do I get credit? Who gives me credit? How do I increase my credit? What's a credit score? Is my credit ok? Will the banks even like me? Do they think I'm pretty?
The idea of credit can (and probably should) keep you up all night.
Breathe, sweet child of mine. We'll get through it.
Credit is king
Don't let anyone fool you-- money is not the most powerful force on this earth... a great credit score is. (Actually, it's water- water is freaking terrifying)
A great credit score basically gives you a skeleton key to all the money in the world.
Having a great credit score tells lenders that you are responsible, disciplined and safe. This makes them want to give you money! If you have a great credit score, it basically makes you Ryan Gossling to lenders.
You can conquer the world with a top-notch credit score.
Even if you're not that interested in points or miles, credit cards are one of the best and quickest ways to build your credit for whenever you want to get a mortgage or auto loan. When you make credit cards work for you, you win!
How do I figure out my credit score?
Before you start applying for credit cards, you should know what your score is. You are allowed to get a free credit report every year. Go to one of the big sites like Experian or FreeCreditReport to figure out your score.
Now, if you've never had a loan or paid rent or utilities or had a credit card before, it's possible you don't have a credit score. Don't panic.
I have my credit score, but what does it mean?
Let's break it down by range:
Excellent/Great/Good Credit (690 and up)
First of all, pat yourself on the back. I'm proud of you. You shouldn't have a problem getting approved.
Fair to Average Credit (629-689)
Don't worry, this is fine. We can build this up quickly, we just need to start out small.
Bad Credit (628 and below)
This probably means you had a delinquency at some point and will require some hard work but we can dig our way out of this mess, but it may not be time to start looking at rewards credit cards yet.
This isn't all that rare, especially if you're getting out of college. We can work with this.
Now that I know what my score means, how can I build my way up?
Just keep paying your bills on time and you'll be fine. Remember, every time you apply for credit your credit score will decrease temporarily. You don't want to go applying for a bunch of cards at once.
Fair to Average Credit
You will probably start off with a low credit line. Even though I don't recommend cash back cards for earning rewards, they have a place here for building up your credit. Every couple of months call your credit card company to ask for a credit limit increase. This will lower your credit utilization rate (the amount of credit you've used compared to what you're allowed to use), increasing your credit score.
Focus on paying your rent and utilities on time until you can build your score back up, or get a protected credit card where you deposit a certain amount and can spend up to that. It's not going to be fun, but baby steps here are important.
Lenders generally won't lend to you if you have no credit score. Think of it like not having a social security number. You basically don't exist. To combat this, hop on to a spouse/significant other/family member's credit card as an authorized user. This will gradually build your credit.
What does applying for a card do to my credit score?
Any time you apply for credit, whether it be a mortgage, credit card or auto loan, the lender will perform a "hard pull" which is a search of your credit history that will lower your score. This is to prevent people from trying to open up dozens of applications at once. The hard pull only affects your score temporarily, but you don't want to apply for cards you don't think you'll get just in case something comes up and you need your score at its highest.
What card should I apply for given my credit score?
You know those letters you get in the mail from credit card companies? That means you're pre-approved as a customer and you will get approved if you apply for that card. That's a good barometer for what cards you can apply for, especially if you're not sure what your credit score is. If you don't want to check your score but got one of those in the mail, go ahead and apply for that and use it (PAY IT OFF!) for a few months.
Great Credit- If you have great credit you can apply for pretty much any card.
Average Credit - Citi and American Express are a little more lenient than Chase, so I would start with one of those.
Bad Credit - There are several options for bad credit, just be smart about being able to pay it off and avoiding harsh interest payments.
Hopefully this gave you more ammo to start you on your journey. In this game knowledge is power. As always, please make sure you pay off your balance in full every month! No amount of rewards is worth a bad credit score.