You just turned 18 and have unlocked a new level of independence. Along with your new
freedoms come a powerful financial tool: Credit.
Used wisely, credit can open a lot of new doors and help build your future. Used wrong, it could own you. Here are some tips to help you navigate the world of credit responsibly and with confidence.
What Is Credit?
Credit is a way for people to purchase products and services with borrowed money. When you borrow money, you are putting that expense on credit with the promise to pay it back to the financial institution you borrowed from. This is called paying back a creditor or lender.
Having good credit is important to your financial and personal journey. Your credit may be reviewed by an employer, can help you with major purchases like buying a car or a home, and it can help lower the Interest Rates you can receive on credit cards and loan
applications.
How Does Credit Work?
When you are ready to apply for credit, whether it be through a credit card or a loan application, there are steps taken by the creditor/lender to decide if you are trustworthy enough to pay back any money you borrow from them. The creditor/lender will review your Credit Report and your Credit Score.
- A Credit Report is a statement that shows your credit activity and current credit situation such as payment history and the status of your credit accounts. When a creditor or lender pulls up your credit report, this is called a Credit Inquiry. Here
they can see your creditworthiness and are gauging how trustworthy you are by seeing if you have shown previous responsibility in paying back the credit you borrowed. Based on this credit report, you will receive a credit score.
- A Credit Score is a calculation based on the information in the Credit Report. It is shown by a 3-digit number ranging between 300 and 850. The score you receive shows how trusted you are to borrow money, the higher the score the
better. Having a higher credit score will help you get approved for credit at a better interest rate.
Tips for Managing & Improving Credit Scores - Pay loans and credit cards on time
- Keep credit utilization under 30%
- Only apply for credit when needed
- Check credit reports regularly
- Use trusted credit bureaus: Equifax, Experian or TransUnion
- How Do I Manage My Credit?
In order to receive a credit score, you must have a credit history. The easiest way to begin building credit is to open a line of credit, like a credit card. Credit cards can be a great resource to help you achieve your financial goal when used responsibly. - Tips for Managing a Credit Card
- Pay on time and in full
- Avoid maxing out cards
- Spend only what you can afford in cash
- Keep utilization under 30%
- Review statements monthly
- Avoiding Debt Is for the Best!
Debt is a financial requirement to pay back the money borrowed from a creditor or lender. When you have received credit or a loan through a financial institution, you are agreeing to pay back any money you have borrowed. This debt can grow over time if payments are not made in full during the payment period because of interest. Do you see how borrowing more money than you can pay back can be a slippery slope? - This is why it’s important to borrow credit responsibly. If you find yourself in a situation where you might have borrowed more than you can pay back, there are ways to help. You can seek help from a financial advisor, can create a budget that sticks to your financial goals, and work towards a repayment strategy like:
- The Snowball Method: Stay motivated by seeing small wins quickly – Pay debt starting with the smallest balances and progressing to largest. Each time you pay off your smallest balance, you will take the amount you were already paying towards the debt and put it towards your next smallest balance.
- The Avalanche Method: Save the most money on interest over time – Pay debt in order of the accounts with the highest interest rate to the accounts with the lowest interest rate. Each time you pay off an account, you will take the amount you were already paying towards the debt and put it towards your next high interest rate.
- WPCU Pro Tip: Take the Mystery Out of Your Score
Your credit score is more than a number—it’s your financial reputation. With My Credit Score, available free through Wright-Patt Credit Union’s (WPCU®) Mobile and Online Banking, you get instant access to your score and report without the guesswork. We’ll show you exactly what’s impacting your score and give you personalized tips and money-saving
offers to help you move it in the right direction. - Key Takeaways
Credit plays an important role in your long-term financial health. Understanding your credit report and score, along with using credit responsibly, can help you save money over time. By managing credit cards wisely and staying aware of your debt, you can build a strong financial future and confidently navigate any challenges that arise.
Wright-Patt Credit Union, Inc. is federally insured by the NCUA, Equal Housing Opportunity
Haylee Jackson
She/Her
Community Development Coordinator
Wright-Patt Credit Union, Inc.
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