How do I go about building a good credit score? Do I have to start now, or can I put it off until I’m older?

Your credit score is a three-digit number that summarizes how financially responsible you are, according to the criteria set by the credit bureaus. Broadly speaking, scores can range from 350 to 800; higher is better. Your credit score is an important number because it can determine not only how much you’d be charged to borrow money for things like a home or a car, but increasingly landlords use them to decide if they want to rent to you, employers in certain industries may check them before extending offers, and even insurance companies are starting to factor them to their pricing calculations. The underlying assumption is that if you are not responsible with your money, you may not be responsible in other areas either.

There are a variety of factors that drive your credit score, but thankfully three of them account for 80%. So nail those and you’re well on your way.

  • The first is how timely you are at paying your bills. One late credit card payment can potentially knock a whopping 100 points off your credit score! This accounts for 35% of your score.
  • The next big item is your “debt utilization ratio.” It works like this. Say you have a credit card with a $1,000 limit. If you carry a $500 balance (and I hope you don’t because that’s a very expensive way to borrow money) your debt utilization ratio is 50% (debt outstanding divided by credit limit). In an ideal world, the highest you’d let this get is 30%. This component accounts for 30% of you credit score.
  • The remaining 15% comes from the length of your credit history. The longer your track record, the better your credit score.

What’s the bottom line if you are in college? Start building good credit by having one credit card in your name that you charge something to monthly that you would be buying anyway and then always paying that bill off on time. Do that and you’ll be hitting the top three factors that influence credit scoring.