Credit History Basics for High School Grads
As a new graduate, you face an important decision: how you will use credit. Credit is essential in making major purchases like furniture, cars, homes, and in renting your own place. Before going out into the world, consider these five factors before you commit yourself to years of debt.
1) Seven-Year Rule: Before you sign on the dotted line, be aware that any information—whether positive or negative—creditors report to credit bureaus will remain on your credit report for seven years. Therefore, bad credit decisions you make at age 18 will follow you until you’re 25, hurting your chances of being approved for car or home loans during that time and potentially increasing the cost of borrowing money.
2) High Scores: If you have established credit, you have a credit score. Your goal is to keep your score as high as possible (solid FICO ratings range from 650 to 850). Scores are determined by your payment history, amount of outstanding debt, etc. Each creditor has a minimum score for potential borrowers. If your score is below a lender’s required minimum, your application may be denied or you may have to pay higher interest rates.
3) Dotted Lines: Don’t sign multiple credit applications, even if a creditor offers you a cool t-shirt that says “South Padre Island 2003” or you get a small discount at the checkout. Each time you sign a credit application, you’re allowing an inquiry into your credit report. The inquiry will remain on your report for two years. Having too many inquiries on file can negatively effect your credit score. In addition, having several open credit card accounts, with high credit limits, also lowers your credit score.
4) Legally Bound: Credit applications are legal contracts. When you sign a credit application, you are agreeing to the written terms and will be held responsible for any debt accrued. Be sure to read the back of the credit application and review all the fees and interest rates that will be charged to your account.
5) Job Jeopardy: Many employers are now running credit checks on prospective applicants before hiring. Negative credit information can be cleared up only through time, so making good credit decisions early on may place you ahead of the competition when that dream job becomes available.
For more information, contact the Office of Consumer Credit Commissioner at info@occc.state.tx.us or through our Consumer Helpline: 800.538.1579.
