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Free Credit Score Information
Your credit score is very important to pay attention to because you never know when you might need to be approved to buy a home. You might need it for any type of loan such as an auto loan, personal loan, college loan or even a mortgage. It's one of the first things a bank looks at other than your down payment. It proves that you have always paid your bills on time and never faulted on a mortgage or any type of credit card or loan.
Would You Loan Someone $10,000 If You Knew They Had Maxed Out A Credit Card?
I doubt it. That's not even a lot of money compared to what banks loan out. Imagine someone coming to your bank and asking you for a $150,000 to buy a home. They promise to pay the mortgage every month but have a record of not paying their last one.
That's the type of thing a credit score tells the bank. So in order to improve your credit score you have to prove that you can, and will, pay your bills. That goes for all bills too, not just your mortgage and credit cards. Your credit score is also something that you need to build, it's not just given to you to hold on to until you mess up.
You Have To Build Credit - How Do I Do That?
If you're young and don't have a mortgage or auto loan payment then get a credit card. Your parents might think it's crazy to get a credit card at a young age, but it's the best way to start building credit.
1. Start using a credit card for purchases that you would normally pay cash for, then pay it off completely at the end of the month. That way you aren't paying those high interest rates or building up any debt.
2. Get an auto loan payment. Even if you only finance $1000 over a year it's still looked at and documented on your credit score. Making all of you monthly payments at a young age will shoot your credit score through the roof. It shows a lot of potential, whether it be from the teenager themselves or the parents pointing them in the right direction.
3. Similar to the last, get a personal loan and buy something nice! Figure out what you can afford for a monthly payment and take out a personal loan. Let's say you can afford about $50 per month working part time. I'm sure the first thing someone will tell you is to "watch out for that high interest rate on a personal loan!". Which is true if you're talking about a 30 year mortgage loan, but not a 1 year personal loan. Use my free mortgage calculator to see that you can get $600 at 13% interest over 1 year for $53.59 per month. You will only pay about $45 total in interest. OR if you have $600 in your savings already and you leave it there for the length of the loan then the bank will give you the current interest rate of 5% or so. The reason for that is the bank is guarenteed to get their money back because you have it in your savings account. This will help build your credit even if you're an adult with a mortgage.
Think of your credit score as "proof" that you'll pay a loan back because that's how the bank looks at it. The bank is in business to make money, and they make money by loaning it to you and collecting interest. They want to loan you money whenever they can because they will make more money too. The problem is when someone comes up and says, "I want $100,000" and the bank looks at their past and sees maxed out credit cards, and a loan that was never paid back. So build your credit, and don't get loans that you can't afford or it could hurt your financial situation for the rest of your life! | 
