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Credit Score: A Short Guide to Achieving a Perfect One

by College Life
Updated on July 13, 2023

Adulting. How hard can it be, right? After all, nothing feels better than being independent, especially in managing the different aspects of your life and making financial decisions. Well, adulthood certainly has its own charms, until you find out the hard way that a lot of decisions, especially financial ones (e.g. dealing with credit scores), can pave the way on how your life is going to be in the next few decades.

This is the reason why when it comes to building a perfect credit score, one can never start too early. And in this article, we are going to share with you some tips on how to do just that.

What is a Credit Score?

Before we dive into the specific strategies you should utilize to achieve a perfect credit score, let's define what a credit score is. A credit score is number ranging from 300-850 that defines your creditworthiness. The higher the credit score, the more attractive you are to someone who you'd like to borrow money from. Your credit score is calculated through your credit history.

Although there are no credit scores in the Netherlands, it's important to learn about this term if you're planning to move to any country where credit scores are used.

1. Select the right credit card.

Select the right credit card

The best way to start building your credit score is to apply to get credit, get approved, and prove your capacity and responsibility in paying one. The process might not be as simple as before, however, that leads most students to opt for personal loans for fair credit or no credit score at all. To curb debt issues, financial institutions are now focusing on offering debit cards in campuses instead. If you choose to still go and apply for a credit card, though, we suggest researching your options thoroughly and get the card that offers the largest amount of benefits, such as the lowest interest rates, realistic credit limits, transparent billing policies, and no annual fees (if possible).

2. Use your credit wisely.

With great purchasing powers come great responsibility. This is the reason why we recommend using your credit card for small purchases for now, especially since you’re still learning how to determine good debt from bad debt. This way, monthly payments will be easier to handle. For unplanned or emergency expenses, you’re probably better off applying for personal loans for bad credit since they offer more flexible payment terms and lower interest rates that credit cards.

3. Pay your bills promptly.

It’s not enough that you keep your monthly credit card and loan payments small and manageable. You should pay careful attention to their due dates too and make your payments to your bank on time. We suggest making your payments a couple of days before their actual due date and scheduling them on your phone’s calendar so that you will be regularly notified.

Here’s a pro tip: If possible, we recommend paying your bills twice a month rather than monthly. This doesn’t just make higher bills easier to pay, but it also lowers your credit utilization and help further improve your credit score.

4. Don’t apply for multiple lines of credit, especially if they’re not needed.

Doing so will reflect negatively on your credit score. If by any chance you do find yourself with a surplus of unused credit card accounts and want to close some of them, then know that your credit score favors credit history. The longer that the account exists, the better it will reflect on your report. Hence, opt to close newer accounts over old ones.

5. Settle your student loan and other forms of debt as soon as possible.

There are different debt settlement strategies. The two most popularly used are the debt snowball and debt avalanche methods. The debt snowball method suggests for you to pay your debt according to its amount, starting from the smallest to the highest. This gives you a sense of achievement from the get-go and the motivation you need to pay off other existing loans. The debt avalanche method meanwhile suggests for you to pay your debt according to their interest rates saving you from additional expenses in the long run. Choose the method that best fits your personality, needs, and preferences.

6. Diversify your credit accounts.

Another way to boost your credit score is to diversify your credit accounts. Don’t just focus on maintaining your credit card. If financially possible, apply for a mortgage and a car loan as well, to give your report a healthy “credit mix”. For example, purchasing a family car can be a good idea, but it’s important to note, though, that you must only do this if you are capable of paying for all of them. Otherwise, this can backfire and pull your credit score down.

7.   Review your credit score and report regularly.

Finally, review your credit report regularly to check for erroneous records. You see, financial institutions can make mistakes too. There might be outdated accounts, overdue payments, and other inaccurate items on your credit report that can drag it down for years without you even noticing. If you do find a questionable entry, then be sure to dispute it immediately to get these entries out of the way.

It’s not that easy to build a credit score, but it’s definitely easier to start with an empty canvas rather than spend years of rebuilding an existing bad score. By keeping the tips that we have shared with you in mind, we’re sure that you will be able to start your journey on financial independence on the right path.

Did we leave out any crucial tips on building a credit score? Let us know in the comment section below!

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