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Let’s celebrate credit!

By Janna Herron · Bankrate.com
Thursday, October 20, 2011
Posted: 3 pm ET

Happy Get Smart About Credit Day!

Sure, it's not one of those days where you exchange presents or invite family over for dinner, but taking the time to learn about your credit is something to observe.

The day is sponsored by the American Bankers Association Education Foundation, which is sending out more than 3,300 bankers nationwide to help educate students about building better credit. Today marks the ninth year the foundation is recognizing the day.

"Survey after survey indicate that young people just don't know enough about credit -- how to build it, how to use it responsibly and what factors impact a credit score," said Laura Fisher, executive director of the foundation, in a release. "Today's lessons provide an opportunity for young adults to get the facts on how to use credit responsibly straight from the experts."

If you or your student can't take part in the live discussions, online lessons, including tips, quizzes and more, are available at the Get Smart About Credit website.

As a supplement, here's my two cents. Make that a nickel:

  1. Don't avoid credit. In order to build a good credit history, you need some credit to begin with. Start small, either as an authorized user on a family member's card or with a secured credit card.
  2. Pay your bills on time every month. Payment history accounts for the largest chunk in making up the FICO credit score, the most widely used score.
  3. Aim to pay off the entire balance every month. While the FICO credit score doesn't differentiate between paying off the balance and paying only the minimum, getting your balance to zero every month helps keep your debt under control.
  4. Don't get near credit limits. If you have one credit card with a limit of $500 and you consistently charge $250 or more every month, that will hurt your FICO credit score. Use a very small percentage of your available credit, less than 10 percent, to demonstrate financial discipline.
  5. Gradually add credit. If you have managed one credit card for a year, think about getting another. Or, consider other types of credit if you need it, such as an auto loan, mortgage or student loan. The mix and length of credit helps to boost your score.

Do you feel you know enough about credit scoring and building better credit? What confuses you?

Follow me on Twitter: @JannaHerron

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8 Comments
Jeff
October 30, 2011 at 9:59 pm

I like point #1. Don't avoid debt. This is sage financial advice. Hahahahahah debt slave.

Chris
October 24, 2011 at 2:48 pm

C Lamb,

The FICO score does not take into account whether you pay the balance off in full or pay the minimum. As Janna wrote, it just makes more sense to pay the balance off in full to avoid finance charges.

Of course, if you're just paying the minimum, you're more likely to be using a greater proportion of your available credit and it's this over-utilization of credit that would hurt one's score.

Cole
October 22, 2011 at 1:37 pm

It is unfortunate that a sales pitch is diguised as education. I understand that we've allowed our credit score to be used in such a way that avoiding credit isn't a very good answer. Just more of the same reliance on debt that has caused and will continue to cause considerable problems.

jennypenny
October 21, 2011 at 11:06 am

How about avoiding it entirely? Encouraging young adults to take on debt is irresponsible. This article sounds like it was written in 2007.

C Lamb
October 21, 2011 at 9:59 am

While I am no longer enthused about credit as I used to be, your article still points out how and why to build a decent credit profile. For example, you need a good credit score to rent an apartment in NYC, and until and unless this changes, it helps to maintain a decent credit score.

Regarding paying the minimum vs entire balance and its effect on the FICO score, I was under the impression that paying only the minimum reduces your score slightly; you should at least pay more than the minimum if you cannot pay the entire amount to keep your FICO score in good shape.

Wolverine
October 21, 2011 at 8:46 am

Now if only the government could get smart about credit, the world would be a much happier place.