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Financial literacy is essential to making good financial decisions, and credit education is a key part of that. If you're new to credit, understanding how it works—and how to make it work for you—is crucial to establishing and maintaining a strong credit history.
Learning more about how credit works can have a big impact on your overall financial health. Having good credit is necessary for more than just being approved for a credit card or a car loan. Potential employers may consider your credit history (though not your credit scores) when you are looking for employment. Your credit may play a part in whether your application for an apartment is approved or whether you'll be asked to pay extra security deposits to open a cellphone account or get electricity or internet service in your name. It may even help you qualify for the best car insurance rates in many states.
A good credit score can help you qualify for lucrative rewards credit cards that pay you cash back on your purchases or help you build up travel rewards for a future trip. And, if your job requires you to travel, you may need a good credit history to qualify for a corporate credit card used to pay travel-related expenses.
Without an established credit history, it becomes more difficult and potentially more expensive to get an apartment, utility services, a credit card or a loan. That's why learning about it should be a top priority. We're here to help.
Experian's Credit Education Resources
At Experian, we're committed to educating consumers about credit through our online consumer education resources, our social media channels and indirectly through our partnerships with organizations like the Jump$tart Coalition for Personal Financial Literacy.
Experian offers plenty of credit education resources to anyone looking to increase their credit and personal finance IQ. Here are a few you can check out now:
- The Ultimate Field Guide to Understanding and Improving Your Credit Score: This new, comprehensive guide is designed to help consumers gain a better understanding about credit reporting and how to improve credit scores.
- Ask Experian credit education blog: For more than 20 years, our blog has been informing and educating consumers so they're better equipped to make sound financial decisions. We aim to answer readers' questions, explain how current issues affect your finances, and provide actionable information to help you reach your financial goals. Learn about what is a good credit score, how to improve your credit, how to save money and much more.
- Experian Credit Course: The Experian Credit Course is a 45-minute online class that takes you through the basics of credit. Work through this interactive course watching videos, testing your knowledge with a quiz and increasing your credit know-how as you cover topics like Why Your Credit Score Matters and How to Raise Your Credit Score.
- Consumer education resources: Get a good handle on credit fundamentals and learn about how Experian's services can help you. You can find information on credit score basics, how Experian can help you protect your identity and even see a sample credit report. There are materials available for download along with presentations and other tools for educators.
- Weekly #CreditChat: Experian hosts our #CreditChat on Twitter with a new topic each week. We also get tips and advice from financial experts during #CreditChatLive programs on Facebook and Crowdcast.io and answer questions every Friday on Instagram.
Our partnerships with Operation HOPE, the NAACP, Black Girl Ventures and other organizations aim to bring financial inclusion to vulnerable communities as part of our United for Financial Health initiatives. Using Experian's data and credit resources, we are working with organizations to help consumers improve their financial health through education and assistance.
Experian's Education Ambassador program is an advocacy program that equips Experian employees with the tools and knowledge they need to successfully manage their credit and to help spread credit education in the communities where they live and work. This volunteer-based program consists of hundreds of Experian employees who are available upon request to provide education on credit management, ways to avoid fraud and identity theft, and more via in-person presentations or webinars. The ambassadors are employees who volunteer their time to reach people in their communities about credit scores.
Top Ways to Establish Credit
The most important thing to know about credit is that you are in control when it comes to your credit accounts. You decide how much to borrow, how much to charge and how much to repay.
If you are just beginning to establish credit for the first time, it may seem like a daunting task. It can be difficult to qualify for new credit when you don't already have a credit history, but it can be done. Here are some tips to help you begin building a strong credit history in your name:
- Become an authorized user. One of the easiest ways to begin building credit is with a credit card. If you can't qualify on your own because of a lack of credit history, consider asking a loved one to add you as an authorized user to one of their accounts. Check with the lender beforehand to make sure they report authorized user accounts to the credit reporting agencies.
- Consider a secured credit card. Secured cards are easier to qualify for than traditional credit cards because you give the lender a deposit that they can use to cover any debt should you stop making payments. As long as the lender reports their secured accounts to the credit bureaus, you can begin building your credit history right away. And, if you manage the account responsibly, the lender may eventually return your deposit or convert the account to a traditional unsecured credit card.
- Add on-time payments to your Experian report with Experian Boost®ø. If you use a bank account to make your utility, cellphone or streaming service payments every month, you can sign up to have those payments added to your Experian credit file. This is especially beneficial for those who have a "thin" credit file or who have credit scores below 680. Once you add your accounts, you could see a FICO® Score☉ increase immediately.
- Ask a trusted family member to cosign. If you are lucky enough to have a close family member with good credit, ask them if they would be willing to cosign for a small loan or line of credit. Keep in mind that if they agree, the account will appear on their credit report as well as yours. That means any missed payments would hurt their credit scores also.
How to Build a Strong Credit History
Once you have established credit in your name, the first step to building and maintaining good credit scores is to make all your payments on time. Payment history is the biggest indicator of future risk, and is therefore the most important factor in your credit scores.
Late payments remain on your credit report for seven years, and the more recent the delinquency, the more it will hurt your scores. Even one missed payment can negatively impact your creditworthiness.
Your credit utilization ratio is also a major factor in your scores and how lenders evaluate the risk of lending to you. Another name for utilization ratio is balance-to-limit ratio. This percentage is calculated by taking the total of all your credit card balances and dividing that number by the total of all your credit card limits. While experts typically advise you to keep your utilization rate below 30%, credit utilization that's below 10% is best for scores.
Some people mistakenly believe that carrying a balance on your credit card from month to month is good for credit scores, but that isn't the case. Ideally, you will use your card periodically to make purchases, and then pay your balance off in full each month.
By spending only what you can afford to repay each month, you can avoid interest charges and enjoy the benefits of credit cards without accumulating revolving debt.
The same is true when taking out a loan. If you are careful not to borrow more than you can comfortably afford to repay, you can choose to use credit as a financial tool that can help you achieve your financial goals more quickly.
Rebuilding After Credit Difficulties
If you've had credit difficulties in the past and are wondering how to begin rebuilding, here are some steps anyone can take to start improving their credit scores right away:
- Bring any past-due accounts current. Since payment history is the most important factor in credit scores, it is crucial that your payments are current on all your accounts.
- Pay off any outstanding charge-offs or collection accounts. Some credit score models no longer count collection accounts in the score calculation once they are paid in full, so paying off old collections can help improve your scores right away.
- Pay down credit card balances. Credit utilization is the second most important factor in credit scores after payment history, so keeping your credit card balances low is beneficial. If you're carrying a lot of credit card debt and aren't sure where to start, see this guide on paying off credit card debt.
- Order your free credit score. When you get your free FICO® Score from Experian, it will come with a list of the top risk factors that are impacting you the most. Improving on those factors will help you improve your scores.
Having and maintaining good credit takes time and effort, but the rewards are many. Taking the time to learn how credit works will help you make the best use of your credit as a means to help you achieve your financial goals throughout your adult life.