Credit Cards
Credit cards can be tempting for everyone, but especially teens who might view the cards as an excellent way to spend what you want when you want, pushing the pain of payment down the road. While credit cards can be helpful financial tools, they must to be used responsibly. The following is a quick primer on all things credit card related:
Age restrictions
First and foremost, those under 21 are heavily restricted in getting their own credit cards. A law known as the Credit Card Act of 2009 says that those under 21 are prevented from getting a credit card of their own unless they are able to prove they have the money to cover any potential debt. That means if you’re under 18 and have no ability to demonstrate income, your chance of getting a credit card is slim to none.
If you’re set on getting on a credit card, perhaps to begin building your credit, you have a few other options.
1. Get a job.
First,you can get a job making enough money to qualify for a card. Credit cards want to see a proven source of monthly income that demonstrates you will be able to meet your obligations in the event you rack up bills on their card.
2. Get your parents to co-sign.
If your parents agree that getting a credit card at a young age is worthwhile, and assuming they have good credit, then they can co-sign a new credit card account for you to use. The bank has your parents on the hook so they no longer have to worry about your creditworthiness. Another option is to become an authorized user on one of their existing accounts.
3. Look into a secured card.
If you have some money and want to open a card to begin building a credit history you can also look into secured cards. With secured cards you put money down and the bank will then be willing to issue you credit for this proven amount of money. These cards can come with annual fees that eat into your money, but secured cards can be a good way to start slowly building a credit history.
Whichever way you get a card, as long as it has your name on it and the activity is being reported to the three major credit bureaus, you will be building a credit history and credit score. The longer you can demonstrate good behavior by making on-time payments and avoiding large amounts of debt, the better your credit will become.
CREDIT HISTORY
You’ve likely heard a lot about credit histories and credit scores and you may vaguely understand that it’s important to keep credit scores high. So what does all this really mean? Read on for more information.
A credit history is a summary of all the debts a person currently owes as well as a history of how that person has paid previous debts and other regular financial obligations, including bills. The credit history is compiled by credit reporting bureaus that collect data sent to them by the companies where you have credit accounts. These credit bureaus then make that information available to other companies who might be considering extending credit to you, it’s for this reason that your credit history is so important. When you apply for a credit card, mortgage or even a phone hookup, your credit rating is checked. Depending on your credit score, lenders will determine what risk you pose to them.
Credit score
When you use credit, you are borrowing money that you promise to pay back within a certain period of time. A credit score is a means of estimating the likelihood that an individual will pay back the money he or she has borrowed.
The credit bureaus that issue these scores each use different systems based on different factors to calculate their scores. The primary factors used to calculate an individual's credit score are his or her credit payment history, current debts, length of credit history and frequency of applications for new credit.
So then what’s a FICO score?
You have likely run across the term “FICO score” and might be confused about what that is. A FICO score and your credit score are essentially the same thing. FICO is an acronym that stands for the Fair Isaacs Corporation, the company that created the software used to calculate credit scores. Credit scores have a general range of between 350 (extremely high risk) to 850 (extremely low risk). The higher your score, the better.
Do mistakes ever go away?
Unfortunately, credit issues can follow you around for a number of years. Just how long the mistake stays on your history depends on the seriousness of the trouble. Credit issues such as delinquencies can stay on your credit history for seven years while bankruptcies stick around for 10 years.
How can you boost your credit score?
There are a lot of ways to boost your credit score, but the best way is to continually show that you pay your debts off quickly and regularly. Beyond that, try and keep your level of overall debt low and refrain from continually applying for new credit cards.
Finally, check your credit regularly.
It’s essential that you pull your credit reports regularly to check for errors or fraud. Everyone is allowed, by law, to get a free copy of their report from AnnualCreditReport.com from each of the three major credit bureaus, Experian, Equifax and TransUnion. If you want to view your credit score you will usually have to pay a bit extra.
