A beginner’s guide to building your credit score

Carmen Perez, the expert money-maker behind Make Real Cents, is back for another episode of In The Know’s Getting Rich. 

Credit scores can be the pride or bane of our existence. Luckily, Perez has created a handy beginner’s guide to building up your credit score

“Having a great credit score is the key to unlocking a lot of different doors,” Perez said. “But when you have a bad credit score that could mean a lot of bad trouble for you.” 

So what’s a credit score in the first place and why is it so important?

“Think of it as your financial fingerprint. It’s made up of the length of credit history. Your new credit, your credit mix, the amount that you owe on there and your utilization of that credit,” she explained.

But Perez said the two biggest factors are the amount owed and payment history. So be sure to pay on time and often. 

“To give you an example of why and how credit is important. I’ve been on the bad side of credit, where I had a terrible credit score. I defaulted on my student loans,” she revealed. “Over time that cost a lot of money.” 

Perez had become stuck in a cycle of having bad credit, getting high-interest rates and being unable to pay it off. That was until she took charge of her personal finance and paid off her debts.

“But on the flip side of that, I’ve been able to purchase a home with a really good credit score and a very good interest rate on my house because I have really good credit now,” she said. 

Good credit can provide access to better housing, cheaper insurance and nowadays even employers may check your score. But Perez called building credit a “Catch-22.” 

“A credit card is the quickest way to build good credit but most of the time you can’t get a credit card without good credit,” she said. “So what do you do?” 

She recommended a secured card because it lets you establish a credit limit with a cash deposit.

“So let’s say you put down $200, your credit limit is $200. If you don’t make the payment the bank just takes it out of your deposit,” Perez explained. “But if you keep making payments your deposit stays untouched and your credit score goes up and up and up.” 

Another way to build credit is to become an authorized user on someone else’s account.

“They don’t have to give you access to the card but you can kind of piggyback off of their good credit,” she recommended. 

Once you have some credit established you can add credit cards, auto loans, student loans and mortgages. Then just sit back and watch your credit score steadily go up.

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