Facebook Twitter Email Print Save I grew up with a lot of mixed messages about credit. My parents basically treated credit cards like they were evil, while friends touted using multiple cards as the only way to make big, or even daily, purchases. And I've watched the toll credit can take on people throughout my life. High school friends stressing about raising credit scores because their parents used their names to take out car loans. Family members growing deeper and deeper into credit card debt with absurdly high interest rates that only go up. As a result, and as an in-debt renter, I've routinely taken pride in tossing out my weekly credit card offers in the mail and sending promotional emails to spam. While I've been intrigued enough to see what my credit score is every now and then, I've mostly figured paying my loans on time will get me where I need to be when it comes to that weird intangible number. But last week, I sat down with a former coworker of mine and we started talking about my column, where each week I've learned how to manage student loans or plan for retirement as a 20-something. As we laughed about our parents' attitudes toward money and first attempts to save up for a big purchases as kids, her voiced quickly turned serious. Like me, she was never offered classes about money; she never had a family member sit down and discuss it. But out of everything we missed growing up, the first thing she wished she learned when she was a teenager was how to build credit. Like some of my high school friends, her parents used her name to take out loans when she was a teenager. And it’s followed her since. While she’s worked to build a good credit score for years, it’s still been difficult for her to rent an apartment or apply for loans. Knowing I, too, will need to find a new place to live and take out loans in the next couple of years, I talked with financial planner Andrew Sivertsen, of the Planning Center in Moline, to see how I can raise my credit score. “Being aware of your credit score is something that needs to start early,” Sivertsen said. “When you need to go out and take out a car loan or a mortgage, the lender is going to decide should I lend it to you, and what’s the interest rate. By focusing on making sure you have a high credit score, you’re going to get the best interest rate and save the most money.” Here are the tips he gave to build better credit. Keep track of your credit I’ve always known of online tools to track your credit score, but I never really knew which website is safe to use. Sivertsen recommends CreditKarma.com, which is free and gathers your personal information and tracking credit patterns from two of the three major credit bureaus. The three bureaus, Equifax, Experian and TransUnion all maintain separate scores and credit reports for each consumer. The online tool shows if your credit score is going up or down, plus what’s impacting it, like missing payments, your credit age and how many accounts you’ve opened or closed. Sivertsen said everyone can get a free copy of their credit report once each year, through AnnualCreditReport.com. That way, you can keep tabs on what lenders are seeing, plus look out for any fraudulent activity. There’s good debt and bad debt While some financial advisers promote the idea of zero debt, Sivertsen said that option doesn’t always work, especially if you need to build better credit. He warns against bad debt — that which is expensive and out of your budget, including high interest credit card debt. But he said taking out loans might be an option to start building credit. “Taking out a small loan isn’t always the worst thing in the world, especially starting out to build a little bit of credit if you have none,” he said. “If you are buying a vehicle and have cash to pay for it, you could take out a loan just to build a bit of credit. Like something really low interest and paying that down monthly.” But you don’t have to have debt to have a high credit score. And scoring systems penalize you for having debt. But since I didn’t really have a choice, and am not currently using a credit card, my federal student loans have kept my credit score in the average range. When borrowing money, Sivertsen emphasized being aware of what you can afford. “Just because a bank or credit card is willing to lend you money doesn’t mean you should borrow that much money,” he said. “Look at your total budget and make sure it’s within reason to be able to pay that back prudently.” Use credit cards responsibly Sivertsen said credit cards are nothing to be afraid of, but they must be used responsibly, especially with average interest rates of 13 to 25 percent. “To have a really high credit score, you have to have several credit cards open, whether you utilize those or not. And it’s OK to pay for things and get some points on things in general with personal spending,” he said. “I think it’s OK to have a couple of credit cards, but the one thing to be careful of is running out and opening every store card you can because they give you a 15 percent discount.” If you choose to use credit cards, he recommends keeping accounts open, but keeping the card use low. Most experts recommend paying credit cards in full each month. But if that’s not possible, keep credit utilization low, not letting the balance exceed 30 percent of the credit limit. “If you can take out up to $10,000 on a credit card, they want to see you don’t use all of it,” Sivertsen said. “If you only have $1,000 on a $10,000 credit card, that means you’re responsible with credit. If the cards are maxed out, your credit score can be damaged.” Other tips Pay all bills on time. Look into options for getting credit from the rent you pay. Pay more than the minimum on credit cards. Keep accounts open for a long time to improve your credit account age. Monitor your credit score and credit reports to avoid identity theft. Sarah Ritter is the business reporter for the Quad-City Times. Each week, she will write an experiential column as part of the series, "Cash Course," aimed at reaching financial security and tackling stereotypes about money.
(888) 333 6986
Client Login
COVID-19 News
