Hi friends,
What is credit? How do I grow my credit? I’m not even sure what other important questions I should be asking.
My parents are immigrants and I’m also one. I moved to the U.S when I was 11. Unfortunately my parents didn’t have the chances that I had and they didn’t get much of an education. Sometimes I feel like I’ve had to navigate a lot of life in the US by myself (SATs, college applications, school loans, etc.) on top of helping my parents navigate it too. I’m a young adult now and I don’t have any guidance and would really like to start thinking about my future. I think credit is a good place to start. Any info/advice is welcome, I literally barely know much about the system. Thank you.
In: 6
As others have noted, credit is when a bank loans you money with the expectation that you will pay it back. However, there is a risk that you might not pay the money back, so the bank needs a way to assess how much of a risk you are. That is where your credit score comes in. Every month, all the banks report information to the 3 credit bureaus, Experian, Equifax, and TransUnion, about their customers. The credit bureaus then use this information to calculate credit scores. When you apply for any kind of credit, the bank will run a credit check with one or more of the credit bureaus to see what your score is plus all the information that is contributing to that score. This helps the bank determine how much, if any, money to loan you and at what interest rate.
Now, here are the components of a credit score:
1) Payment History – Do you pay your current credit bills on time, or do you have any late payments? Very Important
2) Debt-to-credit Ratio – How much of your available credit are you using right now? Very Important
3) Derogatory Marks – Have you ever declared bankruptcy or defaulted on a loan? Very Important
4) Credit History – What is the average age of all your open accounts? Somewhat Important
5) Number of Accounts – How many accounts do you have and what kind? Not Very Important
6) Number of Hard Inquiries – Have you been applying for a lot of new credit recently? Not Very Important
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