Intro to Credit

When you’re younger, credit is something that you associate with getting your school grades just a little bit higher; maybe you’ve even seen them at old arcade consoles as you put money in. Both are representations of you as a person: how well you’re doing, or how many lives you have left in the game. As you begin to understand credit in the working world, it’s still a representation of who you are; the only difference is the factors in play.

Credit in terms of finance is still a numerical way to determine our “street cred”, so to speak; it helps many financial institutions (banks, real estate, etc.) know whether we’re trustworthy. They look at our number (the “credit score”) and use that to decide how likely we’ll be able to pay back any money we borrow (e.g. buying a car). We’ll be helping you understand how that score is determined through something we all know and understand: school.

Payment History – Payment history is a lot like turning in your assignments; companies want to make sure that you’re doing so before the deadline, as well as how often you’re showing up. This takes up the biggest part of your credit score breakdown; if you’re not paying on time, why would they want to give you more money to borrow?

Utilization – This category is a gauge on your tendencies to borrow items from the classroom. Do you only borrow a pencil or two (low utilization), or are you constantly forgetting your items and need everything provided by the teacher (high utilization)? Companies want to know that you aren’t constantly pushing the limits of what you’re allowed to do, since their concern is that you only ever need a little bit. This takes up the second largest category of your credit score.

History Length – With history length, companies want to know how about your behavior as a student. Most students have always abided by the rules in place, and have not caused any trouble. However, sometimes you’re a new student and the teachers don’t know what to think yet; other times you have a reputation of being a troublemaker. This category focuses on how long you’ve been able to keep your “good student” status with what you’ve had so far.

Mix – One of the smaller portions that factor into your credit score, credit mix is about seeing how involved the student is. Do you remember how college applications wanted to see your activities outside of just studying? The same thing applies to your credit score: while a student may do well in school and be involved in extracurricular activities, the credit mix wants to see how many other types of credit you also work with (credit cards, loans, or paying bills).

New Inquiries – This last section is the most confusing for the general public to understand, as it’s a record of how many new lines of credit you’ve opened, as well as how often a credit check has been made on you. Think of it as receiving progress reports or asking the teacher about how you can get more involved: it’s necessary to do know how to stay on track with school, but nobody wants to constantly have to keep bringing it up. Plus, you should know how you’re doing without the constant seeking of attention.

Now that you have a better understanding of your credit score, it’ll become important to learn about the types of credit available, as well as understand the common plastic card many of us carry: credit cards. We hope you look forward to Part Two of our credit series!