Credit management is one of the most valuable life’s skills since it provides the framework for financial freedom. Credit score is important for a young adult as a good picture assures one opportunities like getting an auto loan, a car or even a job. Read this guide to understand what credit scores are, how they’re generated and what you need to do to achieve good credit scores.

Why Good Credit Matters

A credit score is an indicator showing how credit-worthy one is, not just a figure. Some of the people who may request your credit report include lenders, landlords, and even your employers. A good credit rating means that you are eligible to borrow products with great terms, lower interest, as well as higher credit limits. Conversely, having a low credit score results in rejection of loan.

How Credit Scores Are Calculated

Credit rating management starts with the knowledge of how they are computed. The following criteria are provided by FICO or VantageScore:

1. Payment History (35%): The most crucial thing when it comes to credit scores is the timely payment of the bills that you have received.
2. Credit Utilization (30%): This relates to the ratio of credit limits to credit card balances. Ideally, your ratio of utilization should not exceed 30%.
3. Length of Credit History (15%): It's excellent that the credit history is longer. It shows lenders that you have long-term credit management skills.
4. Credit Mix (10%): Credit variety which includes credit cards, auto loan credit, and student loan credit all depict a versatility in using credit.
5. New Credit Inquiries (10%): It can also reduce your scores for a while if you often apply for new credit, so use credit shortly.

Steps to Build Good Credit

1. Start Early: For the first-timers to the concept of credit, you may apply for secured credit card or request to be an authorized user on your parent’s credit card.
2. Pay Bills on Time: Always use the reminder or the automatic payment option to ensure that you are not late because it is very costly to your score.
3. Use Credit Responsibly: Try not to borrow fees which will set you back financially when you are charged interest and accumulate debts.
4. Keep Balances Low: It is good to ensure that the credit usage rates do not exceed 30% of the credit limit.

How to Keep Your Credit Score High

1. Monitor Your Credit Report: It is advised to monitor credit reports fairly frequently for mistakes or identity theft. Annual reports by agencies such as Experian, Equifax, and TransUnion are free.
2. Avoid Closing Old Accounts: If you’re not using an older credit card, then it is better to keep the account open as it can add more time to your credit history.
3. Limit New Credit Applications: All credit checks slightly reduces your score, thus only apply for credit as when you really need it. 
4. Handle Debt Wisely: Always meet the loan repayment schedule and minimize credit card balances.

Credit for Major Life Purchases

Credit, especially a good credit history, is especially relevant to the significant life moments. Credit score makes sure that one gets the best repayment terms and rates when purchasing a car or even a home. It also means you get more information in order to make the right decision when choosing a particular lender.