Advice for establishing credit score
By Julie Newell
What is this elusive thing adults talk about called credit score? Commercials discuss making sure to keep up a good credit score and free ways of checking, but what does it all mean?
The Lookout recently conversed with Whitman Ochiai, teen financial specialist and host of the podcast “Money Ed,” about the importance of credit score:
Q. What is credit score?
A. “The credit score is a number between 300 (and) 850 that depicts a consumer’s creditworthiness. The credit score is an incentive system designed to motivate individuals to pay their bills on time. The credit score has a 300-point minimum and an 850-point maximum and is factored into everything, from interest to be paid on loans to insurance fees. A credit score is based on an individual credit and payment history, including number of open accounts, total levels of debt, and repayment history, and other factors. For example, paying credit card bills on time drives the credit score goes up. However, when a person pays a credit card or utility bill after the due date, or defaults on a loan, that person’s credit score goes down.”
Q. Why is credit score important?
A. “Your credit score is important because it can affect your ability to get a loan, rent an apartment, or even qualify for a job.”
Q. How can you start to establish good credit?
A. “You begin your journey toward establishing a good credit score the day you open a credit card, get a cell phone, rent an apartment or take out a loan, such as a car loan. Typically, these types of opportunities begin to present (themselves) when one is an older teenager. Every time you receive a bill or notification of payment is an opportunity to get a good credit score. Pay on time consistently, and you are on your way to building a good credit score.”
Q. How do you get a good credit score?
A. “There are a number of ways you can get a good credit score. First, pay your bills on time, including utility, cell phone bills, etc. Similarly, pay off debt and keep balances low on credit cards. Second, limit the number of credit accounts you open and apply for. Once you have opened a credit card, keep unused credit cards open as long as they are NOT costing you money – maintaining these credit card accounts adds to the length of your credit history. Third, don’t apply for too much new credit – the number of credit inquiries made about you can lower your credit score. Additionally, check your credit history and dispute any inaccuracies. Your credit score is like your grade, and your credit history is your homework. You can check your credit report with any of the large credit rating companies, including Experian, TransUnion and Exquifax.”
Q. How does your Credit Score affect you?
A. “Your credit score will affect you in the future, particularly when applying for a mortgage, which is a loan you take out to purchase a home. Having a good credit history can secure you lower interest rates on loans, improve your options for insurance, and demonstrate your financial responsibility to any employers or companies who are interested in hiring you. For better or worse, money is a big part of our lives. Listen to the ‘MoneyEd,’ podcast where we try to make the confusing world of finance just a bit clearer for young people.”
The ”MoneyEd” podcast series is on Apple Podcasts (podcasts.apple.com/us/podcast/money-ed-podcast-series/id1492016348), SoundCloud (https://soundcloud.com/user-711067274), GooglePlay (https://play.google.com/music/listen?u=0#/ps/I45tc6sd7hxncezqmawrd2c2nym), Spotify (https://open.spotify.com/show/3DMpcRow7g1arIPqmU11KR), and Amazon Music (https://music.amazon.com/podcasts/454de5ea-6a2a-4579-b92e-fba955d0c5fa/Money-Ed-Podcast-Series).