How improving your financial literacy can help build your credit score
Throughout life, there are many important numbers to know: your birthdate, your social security number and your anniversary, but none may be able to impact your future quite as much as your credit score, and the key to unlocking your best score comes by being financially literate.
"Financial literacy is about understanding the financial options that you have and how to use them most effectively to ensure your financial security and achieve your overall lifetime goals," said Brett House, professor of professional practice at Columbia Business School.
We all start from scratch building credit, but do you know just how important that score is when you are first starting out?
"Building credit is like getting your first job," said Ted Rossman, a senior industry analyst at Bankrate. "Everybody wants you to have experience, but it's hard to get that experience."
Experts recommend starting to build credit around 16 or 17 years old. But how do you ensure that credit score keeps growing?
"Getting a credit card and paying it off every month, by not carrying a balance, by moving into larger credit products like a car loan and again living within ones means ensuring that in good times and bad you're able to make the payments you've committed to," House said.
That's a great tip if you're just starting out, but what if you're in debt?
The Federal Reserve just reported that household debt among Americans is at an all-time high.
So, how can you make that debt more manageable while building credit?
"They should contact a credit counselor, they help people figure out the best way to get out of that hole by consolidating debt at relatively lower interest rates, by prioritizing which debts to pay off first and making a financial plan," House said.
The bottom line is, start small, stay focused and know what kind of debt could hit you the hardest.
"Buying a new car which will depreciate very quickly is a very poor use of debt, whereas investing in yourself, investing in a degree, ensuring that you have more skills and can have a higher income is the kind of debt that could pay for itself over time," House said.
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