Do you remember staying at your primas house watching T.V at two in the morning, but all there was to watch were como arreglar su credito commercials? I remember the actors in the commercials being upset and frustrated while looking over a pile of papers. Now having grown-up and being in the “real-world” I understand there are people struggling to get by because they have bad credit.
Starting your own credit may seem intimidating because of the countless terms being thrown around, but we got you with a guide of do’s and don’ts of starting credito.
What is credit?
Credit is funds being provided by a creditor to a borrower (tu mija) that will be paid in the future with interest (ßesto es super importante). There are two types of credits you may have already encountered; installment credit and revolving open-end credit. Installment credit is credit provided with specific purchases (mortgages and car loans) with interest charged on the amount borrowed. Revolving open-end credit is credit with a specified maximum amount based on income and credit history, interest is charged each month on the remaining balance. Credit cards with imposed limits are an example of revolving end-open credit. Unless you are able to pay everything in cash, you need to build and maintain a good credit score in order to be able to own a house, rent, or have a cell plan.
Now that we broke down some of the basics of what credit is like talk about some do’s and don’t’s about credit.
Do’s
- Do pay on time
Credit scores are a history reflection of your ability to pay your debts to entities that loan you the money. Paying on time shows you are financially responsible and increases your credit score over time
- Do use your credit
Opening a credit card is not enough. If you open a credit card with a limit, you should ONLY use up to 30% of the limit. It keeps the card in use and that impacts score, pero also make sure que si puedes pagar in full by the end of the billing statement.
- Do pay in full
Paying full amount before the end of the billing cycle will eliminate the risk of your payment being late and being subjected to interest and fee penalties. Put your credit card on auto payment at least 5 days before it is due so you do not risk being late on the payment.
- Do look at your FICO score
Once you start to build credit you will acquire a FICO score. FICO score is determined by five main factors: credit payment history, credit utilization, credit history, new credit, and types of credit. Not all of the factors are weighted the same in determining your score, the more serious you are in following the Do’s the higher the score can be. Check out free credit score sites like Credit Karma or Annual Credit Report. I think it’s best to check these pretty frequently but at minimum at least every month.
Don’ts
- Don’t wait last minute to pay
Do not wait until the due day of your billing statement to pay for your credit amount for the month. Unlike your Intro to Literature paper sending it in at 11:59:58pm is still considered on time, but with bills it is a different story. There can be a glitch on the website or your debit card number was wrong suddenly it’s 12:01:00 and you are being charged the interest and late fee. Be early with your payments to avoid the stress and phone call to possibly get out of paying the fees because you swear you paid on time.
- Don’t push your limit
Again, try to spend at most 30% of your credit limit. Over time the credit card company will raise your limit and then you can spend more. Maxing out your card does not look good, because it seems you don’t have enough money to cover expenses. Keep in mind you are only borrowing the money, so you have to pay it back!
Building up to a good credit score is important as you move into different chapters of your life. When applying for your first apartment, landlords use your credit to determine if they want to rent to you or not. You’re a liability if you cannot pay rent on time. As you move on it is in your best interest to have a good credit score. High credit scores have lower interests and better terms on a loan compared to those who have low credit scores. You have the power to shop around for the best loan with low interest rates with a high credit score. It can also negatively impact you getting a job, a phone, car, and a house. As you begin building your life and future always keep in mind the importance of having good credit it means more than having dinero and can deny you the future de tus suenos.