Building Good Credit Scores

By Qingqing Ouyang (‘22)

Good credit scores have many benefits: best interest rates, more trust with both the loaner and borrower, lower finance charges, and access to a larger selection of loan programs. But why does this matter? 

Imagine asking a loaner to lend some money for a project you plan to do. But, the loaner does not think he should give you the loan because he believes you will be unable to pay him back. Unless you show him your credit score. Essentially, a credit score is a number ranging from 300 to 850 that shows “creditworthiness.” In other words, it is a measure of how well an individual is able to pay back money based on past financial history, debt, and more. 

Now the question is, how exactly do you build a good credit score? There are multiple ways to build a good credit score, and it is also good to start young. For any under-18 individuals out there, you can start building your credit score by asking your guardian to add a sub-account under their own. Talking to your guardians and bank will be the best option to figure out how to build credit at an early age.

For those who have just entered adulthood, it is important to be financially responsible. This means paying your bills on time, not having much debt, and being consistent (for at least 6 months). Being consistently responsible shows financial institutions how much creditworthy you are, which will undeniably up your credit score. 

In addition, you should keep a lower credit utilization rate; making it 35% or lower will help a lot. One way is to keep your spending amount low compared to your credit line. The other way is you can also increase your credit line. A credit line is a maximum amount you can spend using your card. If you are able to increase that maximum, you can have a lower credit utilization rate if you are able to not spend all the way to the new credit line. A lower credit utilization rate also shows how a consumer is financially responsible with needs and wants. Instead of closing a credit card account that is not in use, keep it there as well. Oftentimes, closing a credit card account will negatively affect the other account you are using due to time and credit utilization scores. 

Lastly, always make sure you talk to credit repair agencies and banks for the best advice. Every person’s situation is different and it is good to get help from professionals. 

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