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If you’re new to credit there's nothing for you to feel bad about. Perhaps you're just graduating from college or maybe you think you’ll soon by buying a home and need to have good credit in order to get a mortgage. Regardless of your situation, it's important to get started right with your credit. To do this, you need to know the fundamentals. For example, if there’s not enough information about you to generate a credit score you'll have what's known in the industry as a "thin file." This means you will be unable to pull your credit score because you basically won’t have one.
However, there is some good news. When you do have enough data to produce a credit score it won't start at zero. In comparison with what some people might tell you, if you have a little or practically no credit history – as opposed to a bad credit history – your initial score will be somewhere in the middle. This is because at this point you’re given the benefit of the doubt. Beyond this, there are four things you should do that will help you take full advantage of this benefit.
1. See what's in your report
How a lender views you
When a lender checks your credit score, it generally views it in ranges as follows.
• Between 700 and 850 – Very good or excellent credit score
• Between 680 and 699 – Good credit score
• Between 620 and 679 – Average or OK score
• Between 580 and 619 – Low credit score
• Between 500 and 579 – Poor credit score
• Between 300 and 499 – Bad credit score
Getting your credit score
There are several ways to get your credit score. You could get it from one of the three credit-reporting bureaus or on the site www.myfico.com. If you choose to get your score from one of the credit bureaus, make sure that you don't have to sign up for a trial subscription to its service where you would be charged later in the event you forget to cancel it. You can also go to a site such as CreditKarma.com or CreditSesame.com where you can get your credit score free from one of the credit bureaus without having to commit to a trial subscription. Plus, these two sites offer a wealth of other information about your credit beyond just your score. This could be how much you owe on each of your credit cards, the history of your credit score (presented as a graph) and even the amount of your mortgage and your auto loan – if you have one or both of these. CreditKarma will even show you which credit card you should have for the best rewards rate and how much cash back you could earn in a year on new purchases.
An important thing to remember
It's important to remember that it's much easier to build good credit from the first than to reestablish credit after you have made some financial boo-boos. What you don’t want to have in your credit reports are such negative items as late payments, charge offs and defaults as these will damage your credit score for as long as seven years. But if you learn good credit habits now, this can ensure a good financial future for years to come.