Improving Your Credit as a Young Adult

We are all assigned numbers; social security numbers, personal identification numbers, checking account numbers - lots of important numbers to remember and protect. One of the most important numbers is your credit score, the number that tells lenders how capable you are to repay a loan. Your credit score can determine the financial options that are available to you in the future.

What is a Credit Score?

Credit scores range from 300 to 850. The higher your credit score, the more trustworthy you appear to lenders, and the more likely you are to be approved for a loan. There are a few different ways you can check on your credit score. The most popular and reliable is the FICO (or Fair Isaac Corporation) scoring system. To determine your score, a few basic categories are taken into account: payment history, accounts owed, length of credit history, new credit, and credit mix. Each of these categories might hold different weight for different people.

Payment History

Your payment history generally makes up 35% of your credit score—the largest and most influential component of your credit score. The best thing you can do to keep or build good credit is to pay your bills on time. This shows lenders that you are reliable.

Accounts Owed

This section refers to the amount of money you owe and represents around 30% of your credit score. College student reading this are probably thinking “30%? Oh, no! I knew studying abroad was a bad idea…” However, it’s not as simple as you might think; having a lot of debt doesn’t always equal low credit scores. For example, if one person owes $5,000 on multiple lines of credit and has all their credit cards maxed out, they will have a lower score than someone who owes $50,000 but has not reached their limit or has other available lines of credit.  

Length of Credit History

At about 15% of your credit score, the length of your credit history can be very important. FICO scores will measure how long your oldest (and newest) account has been open and the overall average of all your accounts. Having a longer credit history is important, but if you have good scores in other categories, even a short credit history can result in a good credit score.

Credit Mix

The variety of accounts that make up your credit is known as a credit mix. This makes up about 10% of your credit score. Having a good credit mix means having many different lines of credit, such as retail accounts, credit cards, or installment loans (like mortgages, student loans, or car loans).

New Credit

New Credit is the amount of recently opened accounts and makes up the last 10% of your credit score. This means if you have recently taken out a mortgage or a pack of student loans, your credit score may be (perhaps temporarily) lower, especially if the loans were taken over a short period of time.

So, What Does This Mean for Young Adults?

Young adults - especially recent grads - tend to think that they are more financially stuck than they really are. The one factor they dwell on is debt. Actually, having debt is not as crippling as you might think. As long as you can manage your payments, debt will not necessarily ruin your credit report.

Students also tend to think that paying off their loans quickly will improve their credit score. Actually, it can have the opposite effect. Lenders make money off of interest, so sticking to your payment plan will often help your score more than getting rid of your debt fast. Missing a payment, on the other hand, will definitely hurt your credit score. And defaulting on a student loan can be downright crippling. If you’re having issues repaying your loan, talk to your lender before it gets out of hand.

Lastly, having a good credit mix is often lost on young adults. Even if you are not ready to take out a mortgage on a home, taking out a variety of credit lines is important. One such example can be taking out a car loan.

At First Choice Credit Union, we have flexible young adult car loan options. We accept loans for older models, offer various loan amounts and terms, and are less stringent on income and employment options. If you are looking for a good first step in improving your credit mix, this could be a perfect option for you. Apply online, or contact First Choice Credit Union for more information.  

How You Can Save Money as a College Student

Headed off to college soon?

With all the excitement and happiness that goes with pursuing an education, it can be hard to grapple with the reality of financially supporting yourself as an adult. How can you balance earning a degree without going broke? Read our tips below to get you started on the path to financial independence.

Work in school. Whether by having a part-time job or work-study, working throughout college will provide a few things. First, you will earn extra money for rent and books. Secondly, working can help you gain experience and develop essential professional skills that will look great on future resumes. Third, it will help you develop a strong work ethic that will take you far in your professional career.

Learn how to be financially smart and independent. Working hard will earn you lots of money but if you don’t have the right financial habits, you won’t be able to hold onto that hard-earned money. To start with, track your current saving and spending habits. Are you being smart with your money habits or are you scrambling to pay rent every month? Learn to save, budget and invest. Find resources from your school, credit union, family and online to develop and maintain financial habits.

Stick to a budget. As a result of learning to be financially savvy and self-sufficient, learning to budget will be your greatest asset. At the beginning of each month, budget all your bills and necessities — rent, schoolbooks, gas and more — to prevent overspending on your credit card and blowing your savings. Budget in a little wiggle room in order to treat yourself without feeling too guilty.

Get used, not new. From clothes to books to dorm room furniture, there are plenty of resources for you to find quality, used items at a steep discount. Check online, at secondhand stores and college social media pages. There’s always someone looking to get rid of a mini-fridge or to sell a textbook from Bio 101. Buying used will save you hundreds on school and lifestyle expenses so get thrifty.

Be responsible. Got a credit card? Use it as little as you can, and pay it on time, every time. Track your accounts and spending habits to avoid overdrafts. Consider if you really need cable television, a gym membership and multiple fast food trips in a week. Being responsible now can save you tons of money, protect your credit score and set you up for life after college.

With all the educational and lifestyle expenses that come with college, it can be overwhelming to balance earning a degree and supporting yourself financially. Follow these tips, and speak to our experts at First Choice Credit Union for information on student and car loans, as well as checking and savings accounts for students.