I dont know much about credit. I know there is a point system that goes from about 330-830, but thats about it. I also know whenever someone checks your credit you lose points.
So how do you build credit? how do you lose credit? What effect do student loans play in credit? What kind of credit do you need to get a mortgage (i assume about 5 other factors come into play on this issue)?
I know someone on the internet who says her dad told her to take out $1000 loans from a bank when she was young, put the money in a savings account then repay the loan on time to build credit. Is this feasable, and what effect would it have? What about paying off credit cards in full each month, what effect will that have? Aside from these 2 things what else can you do to build credit?
This is helpful
35% of the score is based on your payment history. This makes sense since one of the primary reasons a lender wants to see the score is to find out if (and how timely) you pay your bills. The score is affected by how many bills have been paid late, how many were sent out for collection, any bankruptcies, etc. When these things happened also comes into play. The more recent, the worse it will be for your overall score.
30% of the score is based on outstanding debt. How much do you owe on car or home loans? How many credit cards do you have that are at their credit limits? The more cards you have at their limits, the lower your score will be. The rule of thumb is to keep your card balances at 30% or less of their limits.
15% of the score is based on the length of time you’ve had credit. The longer you’ve had established credit, the better it is for your overall credit score. Why? Because more information about your past payment history gives a more accurate prediction of your future actions.
10% of the score is based on the number of inquiries on your report. If you’ve applied for a lot of credit cards or loans, you will have a lot of inquiries on your credit report. These are bad for your score because they indicate that you may be in some kind of financial trouble or may be taking on a lot of debt (even if you haven’t used the cards or gotten the loans). The more recent these inquiries are, the worse for your credit score. FICO scores only count inquiries from the past year.
10% of the score is based on the types of credit you currently have. The number of loans and available credit from credit cards you have makes a difference. There is no magic number or combination of types of accounts that you shouldn’t have. These actually come more into play if there isn’t as much other information on your credit report on which to base the score.
So i guess student loans would ruin your credit?
Oy. No, you do not lose points “whenever someone checks your credit.” You lose points whenever, pursuant to YOUR application for credit, a check is made and the credit is turned down. Purely informational checks, as for apartment rental or unsolicited credit offers, are not reflected in the credit record.
The best way to build a good credit score is to have credit and handle it responsibly. Get a store credit card, buy things, and pay the card off on time. Get a regular card, buy things, and pay the card off on time. Get a card with a low interest rate, buy things, allow a small balance to accumulate, make your payments on time, and pay the card off before the interest balloons.
Notice the words “on time” – that’s what lenders are all about, getting their money on time. They don’t care so much about getting their loans back, but the interest must keep flowing.
What lenders like to see is a person who has borrowed money, paid interest, paid ON TIME, and who does not owe much money RIGHT NOW. They also like to see a healthy income, a secure job, and a reasonable loan-to-value ratio, but those things don’t affect your credit score (I don’t think). Student loans, if they appear on your credit report, may make it hard to get a mortgage if the lender thinks you can’t handle all the debt. Failing to make your payments on time will trash your credit, though not forever.