A Teens Guide to Building Credit By Sara Fletcher and Julie kopecka

What is credit? Why is it important?

Credit is money that a financial institution or business will allow someone to pay for goods or services before payment.

What is a credit score? What do the numbers mean and how do they translate into ratings?

A Credit Score is a number which represents your credit history. It also affects credit terms and interest rate offered to you. Your credit score indicates the level of risk that the financial institution would have if they would lend money to you and lets lenders know how likely you are to repay a loan. It determines your eligibility when applying for a mortgage, business loan, car loan, student loan, or line of credit.

What is a credit report? Who is involved in producing it?

Credit Reporting Agencies (CRAs) collects information about your financial activity in order to generate your credit score and report. Lenders (and you) have access to this report to evaluate you for credit (Fico Score, etc.)

What factors make up your credit score?

  1. Capital: cash and reserved savings
  2. Character: reputation, employment, payment history
  3. Capacity: one's ability to make payments based on their income, expenses and debt
  4. Collateral: assets being used to secure the loan
  5. Conditions: state of the economy and overall risk

How can a teen establish, build and maintain excellent credit?

To establish, build, and maintain excellent credit, teens can:

  • If one or both of your parents apply for a loan, see if you are able to cosign with them on that loan. This will allow you to start a good history of credit with your bank.
  • Open a checking account if you have a history of doing good business with the bank, they will know you and value that business.
  • Banks offer a Secured Credit Card to people who want to establish, strengthen, or even rebuild their credit score. It secures the amount you borrow with a security deposit and it provides collateral by depositing money in an account with the bank.

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