Understanding Credit Scores: Why They Matter and How to Build a Good One

Introduction: Why Talk About Credit Now?

Does it ring a bell? Maybe not yet. You might brush it off. After all, you don’t need these while buying a burger or a phone. But it will concern you tomorrow as you graduate to bigger dealings such as renting an apartment, getting a car loan or sometimes while applying for a big job. 

Knowing what it is today will help you way ahead in life and you will easily have an edge over others. 

What does the Term mean? 

It is a code that establishes your financial credibility. Based on your history of spending, borrowing, bills and debts, agencies like CIBIL, Equifax, Experian and CRIF High Mark draw up a score which establishes your worth. Within India the average scores can vary from 300 to 900, in the US it works from 300 to 850. 

Trustworthiness arises from your high score. The higher the credit score, the happier the lender is. To put it simply your banks and lender will give you bigger loans and offer you credit cards. 

How does it Matter to me? 

Pertinent question but consider the benefits in the future:

• Borrowing a loan becomes easier. 

• Getting a credit card is not a sore point

• Easier buying a car. We all need that big loan to buy our desired car, so to ensure that banks finance you, credit scores matter

• Landlords refer to your scores to ensure that you are reliable financially

• Even employers may refer to your credit score to check on your credibility especially if you are applying in the finance sectors. 

So, building those credit points right now makes sense so that future anxieties are spared. 

How do they ascertain my credit score? or calculate it? 

The calculation formula varies but these are the major factors:

• Your bill payments

• Your credit history. How much do you utilize your credit limit?

• Duration of your credit repayments

• Your credit types- student loan? Credit card?

• Your recent activities- have you taken too many loans in a short span of time? 

Can I get a credit score? 

I am a teen. Does it apply to me? Yes, you don’t have a score as yet but you can always build credit accounts to create scores. The smart early birds can be the winners here. So how to begin:

• Aligning your loans or borrowings with the parent’s credit card

• Getting an independent student card when you touch 18

• Paying your minor bills such as phone bill, that Spotify subscription regularly.

• Paying on time. 

Your credit is your trust factor- begin today and over time you will be deemed dependable and trustworthy. 

How to retain the score once I begin?

• Ensure bill payments on time

• Do not apply for multiple cards right now

• Do not become a guarantor or co-borrower till you are absolutely sure. 

Be responsible and you will save yourself big stress later. 

Credit score will matter in a big way when you are applying for study loans or renting your first apartment. So, claim that freedom and that benefit now by building a good credit score. Begin now by making the smart moves. And of course, be the teen who knows the latest fashion trends, but also knows the basics of credit. It will take you a long way!