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Where to Start With Credit

April 28, 2016Building Credit

Credit can be a complex subject. Perhaps the best place to start is with the question “What is a credit score?” Credit scores are how lenders, like banks, credit unions and credit card companies, determine whether or not to give credit or loans to those seeking them. This score helps them determine how much these lenders are willing to lend and what interest they expect the borrower to pay. Having a high credit score is good and will help lenders feel more comfortable when you are applying for credit.

Another common question is, “Do I need to build my credit score?”  While the answer varies from person to person the answer is usually, yes. It is a very good idea to start building your credit early, especially if you are planning on buying a vehicle or home in the future.

Why would you want a good credit score?

A good credit score offers many advantages:

  • Cards Fullsize (SE)Low interest rates on credit cards and loans
  • Better chance for credit card and loan approval
  • Get approved for higher limits
  • Easier approval for renting a house or apartment
  • Better car insurance rates
  • Avoid security deposits on utilities

You might not need to borrow money for small purchases or monthly expenses, but chances are, when it comes time to buy a car or a house you will need to borrow money to do so. If this is the case you will want to have your credit score as healthy as possible so that you can receive the best rate possible.

There are two types of credit lines that show up on your credit report. The first is a revolving line of credit, a credit card where you are borrowing a different amount each month and paying it back. The second is an installment loan, where the loan is a fixed amount and you pay the loan with a fixed payment over a set time period.