Credit: How it Works

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Credit. Most people know about it, but do they know what it is. As high schoolers turn 18 it is important to look into credit. Credit opens up many opportunities that may help you make better purchases. “Creditworthiness is how well you manage or pay your bills,” said Coach Canter, a business teacher at FHS. Your Creditworthiness determines your credit score. If you have bad credit, you have most likely not paid for either a loan or something that you are paying off like a car or a phone. A way to improve your credit score is simply to pay things off. The tricky thing about this is that you have to be in debt to pay things off and, therefore, get credit.

The tricky thing about getting into debt is knowing how much debt you can get into without financially crippling yourself. For example, while you may be able to afford a new phone that costs 1000 dollars, you may not be able to afford that fancy 27,000 dollar car. If you get into too much debt and can’t pay it all, it will look bad on your credit and bring it down significantly. To know what you can afford, you must look at what you make financially.

As a high schooler, you may make 700 to 1000 dollars a month. Out of that how much do you spend on gas, insurance, savings, and the things you want. How much are you willing to cut down on so you can get your credit score up? Not only do you have to worry about what things you are paying for and how much you will be able to pay, but you will also have to worry about what you are able to get.

Somethings you may want you will have to get a co-signer for. Let’s say you want to get a car and they go to run your credit and – oh no you have none. This will raise your interest rate on the vehicle, which means you will be paying more over time. This is bad because if you can’t pay what the interest rate is then you will be in debt even more than you should be, and if you can’t pay it your credit goes bad and you can be labeled as a delinquent. There are ways to prevent this though.

There is something called ‘going delinquent’. This is a mark that shows you are inconsistent about paying your bills. This can cause people to deny you things like a car loan or other things. A way to avoid this is to put any amount of money on a bill. Even if it’s $5, it will keep your record clean, which will help you a lot if you are trying to get a loan.

So gather data, evaluate, build debt, and pay off. These are the simple steps to keeping your credit clean and building your credit score. If you wish to hear Coach Canter’s take on this topic please watch this video.