How to Start Building Credit at 18 – Part 1

Hey everyone! It's Akeiva and Meshack and welcome to another episode of The Bemused So today we're talking all about credit and we're answering questions like So first question Credit is crucial

You need credit for a variety of reasons from taking out a loan or mortgage or trying to get a car note even just simple things like renting an apartment you wouldn't even think that you need credit for So, it's a very very important aspect of your financial life If you have a bad credit history or bad credit score it can definitely cost you money So take getting a car note, for example If you have less than stellar credit, likely you are going to have a higher interest rate on that car note which will cost you money for years down the road

FICO stands for the Fair Isaac corporation 90% of top lenders will use this FICO score to determine if they're going to lend you money There are different types of FICO credit scores but the most common is FICO 8 FICO score 8 ranges between 300 on the low end and 850 on the top end and why we called this video "Why we have better credit than our parents" is because our FICO score 8s are better than our parents! Right now, we're hovering in the mid 700s so that's pretty good It's actually relatively straightforward

So, the biggest component, what really drives your credit score, is your payment history and that doesn't necessarily mean that you're paying all of your balances in full but you're paying on time That's really what's the most important in driving your credit score So that's 35 percent of your FICO score and what she means by that is if you have a balance on your credit card for $100, more than likely your monthly payment might be about 25 to 35 dollars so as long as you make that minimum payment of 35 dollars you're going to be considered on time although you still have a balance left on your account that the balance matters [we'll get to that in a second] because you know you might get interest on what the remainder that's left but in the eyes of your credit card company or the FICO score in this example you would have made your payment on time You'd be considered in good standing [Yes] So, that leads us to the second most important which is the amount that you actually owe and it's not necessarily about the dollar amountsof how much you owe but it's how much you owe relative to the original balance of a loan for example if you took out a ten thousand dollar loan and you still have ten thousand dollars or maybe more in interest and your loan is just sitting there accruing interest that's going to negatively impact your credit score Similarly with a credit card, if you have a credit card limit of $10,000 the less that you utilize of that $10,000, the better it will be for your credit score So, that makes up 30% of your credit score

So those are the two big things – payment history and the amount you owe relative to either the full amount of the loan or your credit limit The next is the length of your credit history and this is something that's personally keeping me from growing my credit score just because I'm still you know young I've only had credit for a couple of years now and so that makes up 15% of your credit score So, the longer – there's really nothing you can do about that I mean you can't make yourself older so you just have to wait it out and the longer you have credit history the better it will be for your credit score Next is new credit opened and that makes up 10% of your credit score

So, that has to do with the amount of inquiries on your credit If you keep applying for loans and applying for credit that will negatively impact your score and like I said that is 10% of your credit score – and that was definitely probably a hindrance to me in the beginning because when I decided that I wanted to get a credit card I was – I don't know how many inquiries I might have had on my credit report I applied – I might have got like a "We'll call you in a, you know, when we make a decision" general email or something like that, so I applied again like within an hour and I kept doing that not really knowing the effects of it, but it really does – it can hurt you because you're making a large amount of inquiries in such a short period of time Yes, so every time you open – like, for example, a couple months ago open a new credit card– you're always gonna see a little bit of a dip in your score you know the next month, but it'll bounce back eventually – and also you'll see a dip if you close that account That's something that I had some experience with

As we mentioned in our "What's in our wallet" video, I talked – we talked about our credit cards and I had the Capital One Journey card and when I closed that account out and when I got the Quicksilver, also with Capital One, I noticed that there was about maybe a three to four point difference when I closed that card down and got the new card and for those two reasons, they – for the reasons they will be because I closed one account, that's one and then two I made a credit inquiry and that's what you know those two factors caused me to dip a little bit Right, so that also leads to the last part which is also ten percent of your score which is types of credit So that means if you have various different types of credit – you might have student loans, a car note, credit cards the various different types of credit that you have – the more variability, the better it is Next, how do you check your credit score? So, most credit card companies will offer this to you for free It comes on your monthly statement, sometimes maybe a little bit earlier, and then the next option is checking through creditkarma

com or other free sites that will allow you a check your credit Unfortunately, I don't have any experience with Credit Karma more so with my credit card company such as again, if you go to our "What's in our wallet" video, Discover offers this and Capital One both offer free FICO scores to you every single month The reports that your credit card company sends you every month are definitely very useful and they usually come with a breakdown for each of the categories and we just went over as to how you fare in each category so for example like I said in my credit report I'd be doing well on payment history that would be nice and green and then length of credit will be red because I just don't have a long credit history for example and even within looking different credit card companies you should just be careful because they do sometimes pull from different credit bureaus So there are three credit bureaus that furnish these FICO scores There's I'm sure you've heard of these before and so just, you know, checking don't be alarmed if there are minor differences between credit scores from platform to platform nothing's wrong it's just different bureaus reporting it different matters

And I'm glad she said that because again, if you go back to our "What's in our wallet" video we both have the Discover it card and the Venture One card and when we go on pretty much every month to check our credit score we do oftentimes see a difference in the credit score that Discover might offer and the credit score that Capital One would offer but, I might add that Capital One is really good at determining any new inquiries on your account [yeah] I applied for a private loan for my graduate program and I applied you know just clicked send on the computer and I was getting a notification on my phone almost instantly [within seconds] that uh something you know was going on on my credit report and if it wasn't me to contact the proper individuals to get it to sorted out Yes so that's another reason why credit card companies that do offer that service – it's really beneficial because if there's any fraud going on, if anyone's stolen your identity, you are more aware of what's going on on your credit report because they will let you know the second that someone applies for credit in using your social security number And you might be wondering okay we're saying that we have better credit than our parents but how did we do it? So I I guess we can both give you a brief little overview of how we did it in our own individual ways