Let’s Talk Credit Scores: An Introduction To Credit

Disclaimer: This is not credit or financial advice. This is simply a small guide into getting started on your credit. Spend responsibly.

Have you ever heard of a credit score? Have you ever applied for a home mortgage loan, auto loan, personal loan, credit card or any form of borrowing money from a bank/lender? We’re here to talk about the importance of a credit score, what it is, what it does and how it can help you achieve your financial goals. We’re generally not taught about important tools such as our credit scores until we become adults. And although a lot of this information is available online for all of us to learn, they are often filled with technical terms and confusing language that we just close the computer tab when we touch upon the topic. I will do my best to make talking about credit scores as easy and interesting as possible. If it does sound boring….I don’t blame you for closing the tab and that means I got some work to do! Please do keep in mind, you do not need to go crazy with credit cards or even ever touch a credit card to live a successful and happy life. However, for some people, having decent credit and credit cards are essential to accelerating their dreams and aspirations. So keep an open mind, this may not be for you, this may be for you. You may feel comfortable getting a credit card or a loan, you may not feel comfortable. This a guide for you to get started if you don’t know where to start. I hope this helps.

So let’s dig into the world of credit.

What Is A Credit Score?

Have you ever watched Avatar The Last AirBender when Aang & Zuko went to find the original source of fire bending and these two dragons determined if they were worthy of learning the secrets of fire bending?

  • If you haven’t, please watch the best show ever.
    Please refer to this video from Book 3 Episode 13
  • If you have, then in this case scenario: 

Us normal people are Aang & Zuko, the dragons are banks/lenders and the credit score (the likelihood that the money borrowed will be paid back) is fire bending! 

This sums it up!

A credit score is basically a numerical rating that deems how worthy are you of borrowing money and having the ability to pay the money + interest back to the borrower. The bank/lenders determine if we’re worthy of paying back loans by reviewing our credit scores and credit history. Your credit score will determine if you can be approved for mortgages, auto loans, credit cards, personal loans, etc. The higher your score is, the more worthy you are of learning the art of fire bending (borrowing money)!! The lower your score is, the more likely you’ll be rejected and burnt to a crisp by a fiery dragon. Ok I’m kidding…but seriously, the higher your credit score is, the more likely a bank/lender will give you the loans you need. The lower your score, the more likely you’ll be rejected. As long as your credit score sits over 700, you’re in great shape! These scores can fluctuate, so don’t panic if one day your score is 750 and then next week it’s 730. This happens and it’ll continue to happen.

The score, which most common comes from FICO (Fair Isaac Corporation) can be based upon these ranges:

Taken from Experian.com

How Do I Get Started?

One of the first things my father did for me when I turned 18 is he got me a credit card and he started paying bills with my card. That has got to be one of the most insanely genius ideas my father has ever done for both me and my sister. I had the privilege of my father helping me get started with my credit, which in turn has educated me enough about credit and have kept my credit score high and clean to the point where I was able to get approved for a mortgage loan @ 23 years old. 

My story is different, not everyone has that privilege that I’m grateful and thankful to have. So how do you get started then? 

Apply for a credit card.

It may sound weird at first because like, how is a lender going to trust me if I never had a credit card before?

Secured credit cards or credit card limits silly! Of course they don’t trust you, you just turned 18 and you have no history! Or if you never had a credit card from 18 to your present age, of course they won’t trust you one bit! I helped my significant other get started on her credit and her first credit card had a limit of $500 total! Some people I’ve heard had $200 limits! But this is how you get started. It’s a weird system, I know. You have to apply for credit to get started on your credit but when you have no credit history when you apply??? Like are you kidding me??? Anyway, it is what it is, so yeah apply for a credit card and get started on your credit..BUT…the infamous BUT because I will have to shout this out to you, the reader:

JUST BECAUSE YOU NOW HAVE A CREDIT CARD, DOES NOT MEAN YOU SHOULD MAX OUT YOUR CREDIT CARD AND NOT PAY IT BACK, MISS PAYMENTS OR PAY THE MINIMUM MONTHLY BALANCE

Here is why I implemented this concept, “Treat your credit cards like cash.” When you treat your credit cards like cash you will:

  • Most likely not miss a payment on a credit card 
  • Not carry a monthly balance on the credit card and pay the ridiculously high interest rate
  • Over time, your credit score will increase since you’re always paying off your credit card

To build your credit in the beginning, you must always pay off your credit cards and that will raise your credit score over time. This isn’t an overnight process, you may not see a 700 credit score until after 1-2 years of opening your first credit card. Be responsible with your credit, this is why posts like Get Your Money Right! An Introduction to Tracking Your Finances is important because when you are being responsible with your spending, you will never have an issue missing a credit card payment. Not to discourage anyone who had fallen into the credit card trap or have had no choice but to max out their credit cards. You may have not had the best options at the time and I understand. Difficult choices might be your only choices. However, you have the power to fix past mistakes and get back on track. It is never too late to fix your credit.

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What Credit Cards Can I Apply For?

The most common credit card that I’ve seen around for new comers is The Discover IT Credit Card. Discover offers this credit card that you will most likely be approved for without having any type of existing credit history. They will most likely start you off with a very low credit limit or even have you put in cash into the credit card and then use it to protect their end of the bargain.

I started off with a Discover IT Credit Card and I highly recommend you start off it with too!

SIGN UP WITH DISCOVER USING MY REFERRAL CODE, YOU WILL RECEIVE A $50 BONUS! – DISCOVER IT SIGN UP

How Will This Help You?

Well, without a decent credit score and sufficient credit history, you are more likely to be rejected when trying to apply for a mortgage on a home, possibly when financing a car or asking the bank for a loan to start a business. Now, steady W-2 income is important, but your credit score can accelerate the process and give you lower interest rates when applying for a loan. Imagine not having a credit score and a lender says, you can borrow money, but @ 10% interest annually? That will destroy your wallet and your morality because you’ll feel like you’ll never be able to do the things you dreamed of. Getting started on your credit in the United States is important, it’ll be a key factor into getting your dream home or starting the business you are passionate about. In my case scenario, my credit score is helping borrow money to accelerate building wealth for me and my family. There is more to credit and credit cards, will I will talk about in a later time, but for now:

If you have never gotten a credit card: Get one now and treat it like cash! Yes, it’s possible to get ahead without ever getting a credit card and having a credit score but this is a powerful tool if used correctly!

If you have a credit card and have bad credit because of it: TREAT YOUR CREDIT CARDS LIKE CASH AND NEVER MISS A PAYMENT AGAIN! Temptation is evil, “Pay Minimum Balance” is a scam. Do not give in to temptation and pay off your credit cards, your future self will thank you. 

I hope this post finds you well and that you are being responsible with your credit. Trust me, it’ll make this “Adulting” life a whole lot easier and less stressful!

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