15% of your credit score consists of the length of your credit history, and 10% is based upon new credit. This means simply that it makes a difference how long you have had a credit history. If you are new to the credit game, it is important that you wisely consider adding new credit. It is more important that you have one good account that you charge expenses to and pay it regularly and on time than to add more new credit.
The biggest mistake young people make is to accept every credit offer that is presented to them. It is mighty tempting to have lots of credit available. The trouble is that most of us cannot resist buying the things we want and using our credit to do that. In this way, we get ourselves into trouble early on. We extend ourselves too far. For instance, a student in college has a credit card provided by his parents for $2,500. During the four years he is in college, he receives a dozen offers of new credit cards. Money is tight, so having more money to spend is not an option. But CREDIT is an option. Creditors extend credit offers of $2,500-$10,000 all the time. And it is tempting to have multiple cards. But before you know it, you have $15,000 in credit cards, and have spent nearly all of the $15,000…without the income to make the payments.
Now the only option you have is to call upon parents to help, or default on the credit lines. In a case like this, which is not uncommon, before you ever get out into the work force, you have a bad credit history. More and more frequently, employers are pulling credit reports on new hires. You don’t want to be in the position of failing to get that new job you want because your credit report is insufficient to meet the requirements of the new employer.
As a seasoned debtor of a decade or more, it is also important to heed this advice. As income increases, we naturally want to improve our station in life by purchasing the things we desire. However, increasingly those desired items are too expensive for us to pay cash…or we lack the patience to save up so we can pay cash. We turn to credit as a way to get what we want RIGHT NOW. This practice, if not carefully managed, can put us into the same position as the student.
It is therefore important to manage the amount of credit that we accept based upon our income and the expenses we have already committed to for our families. This cannot be stressed enough!
10% of our credit score consists of the types of credit used. That means that you want to have a balance between secured credit, unsecured credit and installment credit.