Starting out in my adult life I knew very little about credit and how it worked. But hooooo boy did I learn fast. If you are in the dark about credit scores, here are the basics:
What is a credit score?
Your credit score is a number indicating your past credit payments. The number can be from 300-850 and higher is better. FICO is the official term for your cumulative score pulled from the three credit reporting agencies. There are several sites that will let you see your credit score for free. NEVER pay for a peek at your score or your report. You are entitled to one free credit report per year from the Federal government. Get it here: www.annualcreditreport.com.
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How do you build credit?
If you truly are starting from scratch, a secured card that reports to the major bureaus is best. You pay a small fee and slowly build up your limit with on-time payments. You are at the mercy of high interest rates and low rewards (if any) until you prove yourself as a steady and reliable customer.Another option is to find someone who you trust (and trusts you!) and ask them to add you as a user on one of their cards.
How do you fix bad credit?
Slow and steady wins the race. Curb spending, pay off debt, make on-time payments, and DO NOT OPEN MORE CARDS.
Why do you need credit?
If you ever intend on being On The Grid ever, you will need credit. Apartments, cars, some jobs, utilities, mortgages, credit cards (duh), some bank accounts, and renting cars all require credit. In two generations people won't even know what paper money is and we'll all just be walking around bitcoining each other in the iWallet or something. But for now, a credit score and the associated government mandated monitoring are what lets lending institutions know you are legit. Do you need good credit? I guess not. Someone somewhere will always give you money for a house or car. Good credit means you don't have to pay through the nose for it.
How do you pay off debt?
As with all things in life you must be patient. The only indicator of future acts is past performance. So, if you've made some missteps you're going to have to prove yourself a little bit and rewrite history with all the good work you do in the future. It won't be as much fun as making it worse, but you will make it better.