BALTIMORE — If there's one financial goal you have in the new year, think about improving your credit score.
Lenders use this number to determine whether they'll give you a loan and how much you'll pay.
Your score impacts credit card limits, mortgage approval, and interest rates. And depending on that number, you could be paying thousands of dollars more over the lifetime of a loan.
To improve your credit score, Loyola University Maryland JP Krahel recommends getting a credit card as early as you can.
"If you've got a kid who just turned 18, get that kid a credit card," said Krahel.
It's not so they can rack up charges, but rather establish a pattern of responsible borrowing.
"Low limit, low interest, nice, small amount so this way the kid can get themselves a coffee once a month, pay it off right away. And say I've been doing that for five years, then when it comes time for me to rent an apartment, I've got five years of credit history that my landlord can check," said Krahel.
And those years make a difference.
According to Forbes, 15 percent of your credit score is based on length of credit history and age of accounts. Thirty-five percent depends on payment history and track record of paying on time. And another 30 percent is credit utilization or how much credit you have available on each card and overall.
"You don't have to be super wealthy. If I spend five bucks a month and pay off five bucks a month, I'm way better than the kid next to me who never had a credit card, never had any credit history. And we're both going to try for the same apartment, I'm going to get it," said Krahel.
Giving your score a "boost"
To help younger borrowers beef up their score, or others trying to rebuild theirs, there's now Experian Boost.
The credit bureau offering the tool gives consumers credit for paying bills outside of loans and credit cards.
"It lets you add your positive cellphone payments, your positive utility payments, even things like your cable television bill to your credit report to give you a boost to your credit scores as you go into the new year," said Rod Griffin, director of consumer education for Experian.
It's free to use but some critics argue you're giving away too much information like access to your bank accounts so they can confirm how much you've paid and when.
Other ways to boost your score include:
- Becoming an authorized user on a family member's credit card
- Using a credit-builder loan
- Try a rent-reporting service where some companies offer to have your rent payments reported to the credit bureaus
And remember, you're entitled to a free copy of your credit report every 12 months from each of the three credit bureaus. You can order them online at AnnualCreditReport.com.