“Having no credit history can be as detrimental, or worse, than having a bad credit history.”

There are five factors that make up your credit score:

1) Payment History: Your payment history accounts for 35% of your credit score. The goal is to establish a record of full, on-time payments. Recent history is given more weight.

2) Amounts Owed: Your debt accounts for 30% of your credit score. Credit bureaus look at both your total debt and your debt-to-credit-limit ratio. Not all debt is bad, but a lot of credit card debt is definitely frowned upon.

3) Length of Credit History: How much history you’ve already established accounts for 15% of your credit score. This can make it difficult for young people who are just starting out.

4) New Credit: Recent credit acquisitions account for 10% of your credit score and new accounts are handled with suspicion.

5) Types of credit used: The types of credit utilized account for 10% of your credit score. It’s helpful to diversify.

Question: Will I build a credit history if I am an “authorized user” on my parents’ credit card?

Yes. One way to get started to build credit is to have your parents, or another relative, add you to their account as an authorized user. This allows you to have a card and start building a credit history, based on your parents’ management of the account. Your parents can monitor your use of the card—and can easily have you removed from the account if your spending gets out of hand. I once aptly heard it explained as follows: “It’s like having training wheels.”

Question: Do I have to actually use my credit card to build a credit history?

If your goal is to build a credit history, charging something and then making payments on time demonstrates responsible use of credit and helps to create a good credit score. If you’re just starting out, it typically can take many months of using a card to generate a FICO score. In addition, some credit card issuers may close your account if it’s inactive for an extended period of time. Thus, it’s advisable to use the card for routine purchases—like filling up your gas tank —and paying the balance in full each month.

Question: How do “secured” credit cards work?

Secured cards are another option to help people establish credit or repair damaged credit. They essentially allow you to “buy” credit, putting up your own money as collateral and then spending on a card, usually up to a limit equal to your deposited amount. The issuing bank reports your payment record to the credit bureaus, helping you to build a credit file. You should, however, make sure that the card reports to all three major credit bureaus.

Eli Garfinkel of Funding Resources Mortgage Company is an experienced and reputable loan officer. Eli specializes in great customer service and dealing with complex cases. Eli is available to answer any mortgage questions, without any obligation. Eli can be reached by phone or text at 732.278.6526 or via email [email protected] or in the office at 732.364.7373 ext 22.

By Eli Garfinkel