Many of us carry little membership cards in our wallets every day — credit cards.
They give us access to money that we may not have and let us pay for things when we’re not carrying cash. Our credit scores give us access to loans, mortgages, jobs, and, sometimes, more credit cards.
Understanding credit can be difficult: what exactly goes into a credit score? Michelle Singletary, who writes the nationally syndicated Washington Post personal finance column “The Color of Money,” says that building and maintaining a high credit score can be simple. “People think that there are so many tricks to getting a good credit score,” she says, “but the number one way to get a good credit score is to pay your bills on time.”
For those who are new to credit, using a low-tier card with fees and working up to a more serious card is a good option. And for those who want a credit score without a credit card, paying off student loans, a mortgage, or a car loan can help establish a credit score.
Credit scores, like the FICO score, were designed to make credit and money more accessible with more objective criteria. Singletary says that in the past, lenders would call the merchants you did business with and just ask about your credibility. “It was much more subjective,” she says, because merchants could bring in your personal history, or their own biases.
While a numeric, measurable score makes things simpler, it can still be discriminatory, especially against people who rent instead of own a home. Singletary says that this can especially skew against people of color, who rent in higher numbers. “If you’re a renter, your on-time rental payments aren’t considered in the traditional FICO score,” Singletary says, “and so that could eliminate some good history for a great number of people, oftentimes minorities.”
The good news for everyone is that credit and credit scores are changing. Medical debt, which has in the past carried significant weight in a credit score, is becoming less important in the new FICO score. Singletary says that hopefully, rental payments could also be included in different types of scores.
While credit scores aren’t being used less, they are expanding and becoming more inclusive. Singletary encourages people who are working to establish or rebuild a credit score to do it themselves using MyFICO or tips from the Federal Trade Commission.
To learn more about establishing, rebuilding and maintaining credit, tune in to the full interview using the player above.