Building Credit
Oct. 5, 2015 Whitepaper

Educating the Next Generation: Building Good Credit

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Having good credit is an essential building block of any financial plan. A good credit history helps individuals qualify for lower interest rates when taking out a loan or a mortgage, and it opens up opportunities not available to those with poor credit. 

Understanding how to build and maintain good credit is essential, especially for young professionals and recent college graduates who hope to someday purchase a home or request a loan or line of credit.

Building Good Credit

Your credit history is checked anytime you request a loan or credit card. Not only do you need a good credit score to take out a home mortgage, your credit score also plays an important role in your ability to rent an apartment, take out a car loan and more.

So how does a young professional begin to build credit?

Your FICO credit score is made up of the following:

  • Payment History (35 percent)
  • Amount Owed (30 percent)
  • Account Age (15 percent)
  • New Accounts/Inquiries (10 percent)
  • Credit Mix (10 percent)

To improve your credit score and begin the long process of building a good credit history, we recommend the following:

  • Make all credit card and loan payments on time – When you’re just beginning to build a credit history, even one missed payment can negatively impact your credit score.
  • Don’t forget about student loan payments – Student loan payments are often a major contributor to (or detractor from) an individual’s credit score.
  • Pay off old bills – Have an outstanding bill from years ago? Be sure to pay it off as soon as possible, as old debt can negatively impact your credit, especially when payments have been missed.
  • Report rental payments – And, of course, make them on time.
  • Build credit by using bank credit cards – Banks are more likely to issue a credit card to clients who have an account history.
  • Build credit by using store credit cards – But be careful. Having a card for every store you shop at could lower your credit score, and store credit cards often carry higher interest rates than bank credit cards. Choose one or two stores you shop at regularly, and pay off the balance each month to improve your credit score and avoid being charged interest rates.


Sources:
Fontinelle, Amy. “How To Establish A Credit History.” Investopedia. n.p. n.d. Web. 9 June 2015.
Kurt, Daniel. “Start Building Solid Credit At A Young Age.” Investopedia. n.p. n.d. Web. 4 June 2015.
Rotter, Kimberly. “Do I Need A Credit Card To Build My Credit?” Investopedia. n.p. 25 March 2015. Web. 4 June 2015.

This document is for informational use only. Nothing in this publication is intended to constitute legal, tax, or investment advice. There is no guarantee that any claims made will come to pass. The information contained herein has been obtained from sources believed to be reliable, but Kaiser Hoffman does not warrant the accuracy of the information. Consult a financial, tax or legal professional for specific information related to your own situation.