Protect Credit Score

Emily Glazer, The Wall Street Journal Sunday

Sherelle Villacorta knew she had to get her credit score "under control" before graduating from college if she wanted to avoid problems signing an apartment lease or getting a loan.

"I want to be able to get a car someday," says Ms. Villacorta, a financial analyst in Long Beach, Calif. "I want to get it on my own and not need to get help from my parents."

Ms. Villacorta cut back on her spending in order to pay down her credit-card debt faster. Now, six months later and debt-free, the 23-year-old pays any balance in full each month. And her credit score from credit-reporting company TransUnion has gone from an average 697 to an excellent 758.

Ms. Villacorta is one of many twentysomethings learning the importance of a credit score, a number used by lenders to help determine if you qualify for a credit card, mortgage and other loans. A credit score also is used when you apply for an apartment lease and even for some jobs.

"The credit score is the only grade that matters after you graduate from school," says Alexa von Tobel, founder and CEO of personal-finance website LearnVest.com. "It's a number that follows you for the rest of your life."

A credit score is comprised of factors including your payment history, debt amount and how much of your credit limit is currently being used. There are many credit scores, but the most widely used is the FICO score. Depending on the information in your credit report, you could get a FICO score from each of the three major credit-reporting companies: Experian, TransUnion and Equifax. A FICO score ranges from 300 to 850, with a number above 725 landing you the best approval and interest rates, according to FICO. A score below 560 deems you a credit risk.

Younger adults typically have a short credit history so blips can make a big impact on their credit scores. To keep a good score intact or to revamp a bad score, focus on making loan and credit-card payments on time. Also try to pay more than the minimum amount each month. Having a balance of more than 30% of your credit limit will hurt your credit score, too.

If you'll begin to repay student loans later this year, set up automatic payments through the lender or online banking so you don't miss any payments.

It may be tempting to cancel extra credit cards once you've paid off your balances, but doing so could actually lower your score. If you cancel your oldest credit card it will affect the length of your credit history, a factor in determining your score. But also be careful about applying for credit cards or loans. Each time a lender officially looks at your credit report and score, your score gets dinged.

If you don't have a credit history, you can start to build one with a secured credit card, in which you deposit a sum into the card and can charge up to that amount, says Justine Rivero, credit adviser at consumer credit company CreditKarma.com.

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Originally published May 22, 2011

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