“A Beginner’s Guide to Understanding and Building Credit”

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Building Credit as a Recent College Graduate

As a recent college graduate, you’re stepping into a world filled with new financial responsibilities. While improving your credit might not seem urgent, starting early can be highly beneficial. Your credit impacts various aspects of your life, from qualifying for rentals to obtaining rewards credit cards. Good credit is especially crucial when it’s time to buy a car or home. Even without taking out a loan, good credit can save you money, as insurance companies often consider your credit when determining rates.

Five Steps to Building Your Credit

Here are five simple steps to help you understand and improve your credit:

1. Check Your Credit Reports

Knowing your credit status is essential. Your credit history is documented in credit reports, which are records of your interactions with various bills and credit accounts. The three major credit reporting companies—Experian, TransUnion, and Equifax—collect and organize this information.

If you haven’t had a credit card or loan, you might not have a credit report yet. You can establish your Experian credit report using Experian Go™ or by applying for a credit card or loan and making timely payments. If you already have a loan or a student credit card, you likely have a credit report.

Reviewing your credit reports is crucial because creditors, landlords, and employers may review them before approving your applications. Ensure all information is accurate and be prepared to explain any negative marks.

You can check your Experian credit report for free and get free credit monitoring. Additionally, you can request free copies of your credit reports from AnnualCreditReport.com.

2. Understand How Credit Scores Work

Your credit reports form the basis for your credit scores, which help people and organizations gauge the likelihood of you falling behind on payments. Various credit scoring models analyze your credit reports to determine your scores. FICO and VantageScore® are the most widely used models, and they consider factors such as:

• Payment history: Timely payments boost your credit, while missed payments can harm it.
• Credit usage: Keeping your credit card balances low relative to your credit limits is beneficial.
• Length of credit history: The longer your credit history, the better for your scores.
• Credit mix: Having a variety of credit types can positively impact your score.
• Recent activity: Applying for new credit can temporarily lower your scores.

3. Start Paying Off Your Student Loans

Many college graduates leave school with student loan debt. As of the third quarter of 2022, the average student loan balance was $39,032. Making timely payments on your student loans is crucial for building good credit. If you’re struggling with payments, explore different repayment plans to find one that suits your budget.

4. Apply for a Credit Card to Build Credit

Having multiple credit accounts and a mix of credit types can improve your credit score. Credit cards are a simple way to achieve this, offering rewards, protections, and other benefits. While some credit cards require excellent credit, there are options for those new to credit, such as secured credit cards and cards that use bank account information for approval.

Follow these best practices for credit cards:

• Don’t spend more than you can afford to pay off each month.
• Pay the statement balance in full to avoid interest charges.
• Make early payments if you have a high balance to lower your credit utilization rate.

5. Get Credit for Other Monthly Payments

Most credit reports focus on loan and credit card payments, but you can also add other types of payments to your credit report. Experian Boost® allows you to connect your bank and credit card accounts and add eligible rent, utility, cellphone, and select streaming service payments to your Experian credit report, potentially boosting your credit scores.

Keep Tracking Your Credit

Building credit takes time, but understanding how credit reports and scores work gives you a solid foundation. Making timely payments on loans and credit cards can lead to an excellent credit score. Experian’s free credit report and score monitoring services make it easy to track your progress and gain insights into what’s affecting your credit score the most.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey and achieve your goals.

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