5 Things You Should Know About Credit

5 Things You Need To Know About Credit

Knowing these five simple things can help you protect your credit score and finally start building it.

6
views

Before I knew about credit, I would apply for a credit card and hold my breath as I hoped to get approved. I had no idea what credit card companies were looking for and what popped up on their end when they performed a credit inquiry. Once I researched credit, I was mind blown by some of the things that affect your credit score. Once I understood credit, I was able to bring my score from roughly 640 to 740 within one year. These are helpful things you should know about credit so you can start building yours.

1. Credit inquiries hurt your score

A credit inquiry is anytime someone uses your social security number to run a credit check on you. It happens much more often than you think. It happens when you apply for a lease on an apartment and the landlord checks your credit and it happens every time you apply for a loan. Even if you're shopping to compare rates, you have to be careful. In some instances, there is a grace period after the first inquiry for a loan of that type. If you are shopping around for home loans, you have a 45-day window to get all your inquiries in or your score will continue to get dings. When I bought a car, the car dealership ran a loan application for multiple companies. I did not think anything of it at the time, but all of those companies counted as separate inquiries. My credit score took a hit from this for two years.

Every time you apply for a credit card, even if you are denied, it will count against you. According to Creditwise, no inquiries in a two year period is considered "excellent," one to two inquiries is "good," three to five is "average," and six or more is below average. Many people think that having a lot of credit cards hurts your score. In actuality, it only hurts your score if you got them in a short period of time. It is better to keep these cards open than to close the account because it increases your available credit. After two years, an inquiry is taken off of your score. This is where my credit normally takes a negative blow. In the last year, I refinanced my auto loan and applied for two credit cards, putting me in the "average" category. Now that I am aware that this harms my score, I take seriously when I authorize an inquiry. Beforehand, I would apply to credit cards, mortgage companies, and auto loan companies just to see what I would get approved for.

2. There are two type of inquiries: hard and soft

Not every inquiry harms your score. For example, if your banking app allows you to use companies like Creditwise or Credit Karma to check your own credit score, it will not harm your score. It is considered a "soft" inquiry. If an employer pulls your credit score while doing a background check or when a credit card company gives you a "pre-qualified" offer, it is also considered a soft inquiry. Apartment rental applications can be either hard or soft, but are commonly hard inquiries. My last rental application counted as a soft inquiry. It is good to ask, just in case you are not serious about a place. Any loan or credit application is usually a hard inquiry.

3. Store credit cards can be a waste of an inquiry

Many retailers offer small promotions to get customers to sign up for a store credit card. However, a store credit card is a hard inquiry and does not offer a lot to help your credit in other ways. A way to boost your credit is to have a lot of available credit. Your available credit combines all of the unused credit you have across all of your cards. Store credit cards usually only offer a small credit limit.

For example, I once got suckered into applying for an American Eagle store card because they gave me a 20% off discount on a pair of jeans. The credit limit was only $400. I do not need a higher credit limit, but the card does not offer much for me outside of that discount. I can only use the card at American Eagle and still need another credit card. My United Chase credit card started with a $5,000 credit limit and improves my score in the available credit category. My American Eagle store card still has a $400 limit, after two years, since I do not use it much. My Chase card increases my credit limit every few months which helps to boost my score effortlessly.

4. Keep your debt under 30%

Using more than 30% of your available credit harms your score. You should also spread your debt across all of your cards to keep it under 30% on each card. Lenders also check your debt-to-income ratio to see if your debt is less than 43 percent of your income. Your monthly debt is not your expenses or how much you owe your credit card companies. What is counted is actually your mandatory minimums. For example, if your monthly income is $4,000 and you owe $40,000 in student loans, your ratio would not be at 1000%. Lenders look at what your payments are for each month. If your student loan payment is $400 a month, that would give you a 10% debt-to-income ratio. Lenders add that to school, auto, and home loans to come up with a complete number.

5. Some debt is good debt

When lenders look at credit profiles, they also look for a variety of debt. It may seem odd that having a home loan (and all the debt associated with it) helps your score but it can. Certain debt, like home loans and student loans, are considered good debt. Auto loans and credit card debt is considered bad debt. A diverse credit profile shows a history of personal loans, auto loans, student loans, mortgages, and credit card debts. I have experience with all of these except a home loan. Realtors are frequently trying to seduce me to take out a home loan in order to improve my credit profile. Personally, it is much too large of a loan to take out before I am ready.

On a hard inquiry, it will show how much debt has been accumulated in a category and how much has been paid off. For example, for an auto loan, it will say the loan amount and how much I paid off that amount. For this reason, I have used student loan refunds (that are loans) to pay back loans I already have out. It helps lessen my interest and will show that I can pay back a higher amount.

Popular Right Now

Why Money Isn't Everything

What really matters in life are family, friends, and happiness.
11638
views

Everybody wants to be successful in life. People want to be rich, have a lot of friends, and become famous. However, what if instead of being rich with money, you were rich with family and people who cared about you? What if instead of having a lot of friends, you had a lot of happiness and health in your life?

Many people forget that money and fame do not lead you to the top. Having friends and family who truly care about you and obtaining a raw happiness from just living life are really what matters in my opinion. It all depends on people's values and morals.

Some people will say that money is what makes the world 'round. This is true. Unfortunately, money is a big factor in how we live our lives in today's day in age. However, money is not everything. While money can buy you a mansion, it cannot buy you a family to live in it.

When we think about success, we tend to think about these material items, but how sad would it be not not have anyone to enjoy them with? Life is supposed to be spent with the ones you love and care about. If money gets in the way of that, then maybe it is time to reassess your priorities in life.

Cover Image Credit: Google Images

Related Content

Connect with a generation
of new voices.

We are students, thinkers, influencers, and communities sharing our ideas with the world. Join our platform to create and discover content that actually matters to you.

Learn more Start Creating

6 Money-Saving Apps Every College Student Needs To Take Advantage Of

Aka how to spend while being a broke as f*ck college student.

25
views

Every college student knows the struggle of pinching pennies. Sometimes we sleep for dinner or swipe food from the dining hall for later. Buying new shoes is a luxury and eating out at chipotle is a treat. It doesn't have to be this way, though. There are tons of apps and websites that will help save money on everything from new clothes to parking fees. Keep on reading to find out how to save a few bucks with every purchase you make.

1. Ebates

Ebates is a website that offers cashback on nearly every purchase you make online. For each store, there is a percentage of money that you get back. It builds up in your account and gets cashed out every three months and goes into your PayPal account. There are also chances to earn double cash back at stores or get exclusive coupons. Some cashback can get obtained in in-store purchases, you just have to link the card you are going to use.

2. Flightdrop

Flightdrop is an app that helps you find cheap airline tickets to anywhere in the world. You get a notification about a cheap ticket deal you can purchase. In the past, I have been offered $400 roundtrip tickets to Paris and $500 roundtrip tickets to Japan. However, they are only these prices certain days and months so there is not a lot of flexibility in that area. You can also earn points by completing certain tasks which will unlock your perks like getting flight notifications earlier than some.

3. BestParking

Finding parking and at a reasonable price can be a drag which is what this app was designed to solve. The app allows you to see the available parking spots and their prices in your surrounding area. This helps users cut down on time and save some money by finding the cheapest spot rather than parking in the first spot they see open. You can also reserve a parking spot in the app which can save you up to 50% off the standard rate.

4. Honey

Have you ever looked up a coupon for a store before hitting the purchase button just in case you find something? Honey is a browser extension that does that for you but in a more efficient manner. Honey browses and tries all the possible coupons found for that website so you don't have to manually try each one. Honey also gives you points with certain purchases made which can be saved up towards a $10 gift card to a store of your choice.

5. StudentBeans

StudentBeans is an app and website that offers student exclusive coupons and deals in everything. They offer deals and coupons on clothing, food, travel, subscriptions, entertainment, etc. It's free as long as you sign up with an account linked to the school you go to. You don't even have to be a college student to use this one, it is open to high school students as well.

6. UNiDAYS

This is another app and website that offers student exclusive deals and coupons. UNiDAYS offers a lot of discounts and deals for many websites you are familiar with or already shop at. StudentBeans has fewer options and tends to be less known brands. With that being said, it is worth it to use both because you never know what kind of deal you could come across in each application.

Related Content

Facebook Comments