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Overview
It is important to know how certain actions you take can affect your credit score. Getting a first credit card will affect your credit report and ultimately your score.
Establishing Credit
A first credit card is a good first step to establishing credit, but it is not a "quick fix." Without a line of credit, with regular bills to pay, there is no way to generate a credit history. Without a credit history, there is no way to generate a credit report. Your credit report documents your credit behavior. The report lists actions such as whether you pay your bills, whether you pay them on time and whether you pay them in full. Credit reports are used to judge a person's credit worthiness. Prospective landlords, employers and lenders, among others, use the reports as an indication of how well an individual pays her bills and handles her finances. Credit reports have a direct impact on your FICO credit score. The higher the FICO score, the more creditworthy you are considered. Lenders approve or deny loan requests based, in large part, on FICO scores.
FICO Scores
The three major credit reporting agencies--Equifax, TransUnion and Experian--maintain separate credit files. Each credit report is used to calculate separate FICO scores for individuals based on the proprietary algorithm developed by the Fair Isaac Corporation (NYSE:FIC). Since each agency works independently and bases its scores on its own records, the three FICO scores are not the same (but usually are similar). Any individual may have three different FICO scores.
How FICO Scores Are Calculated
FICO scores are based on your credit information in five general categories, according to the Fair Isaac Corporation. Thirty-five percent of your score is based on payment history, 30 percent is based on amounts owed, 15 percent is based on length of credit history, 10 percent is based on new credit and 10 percent is based on types of credit used, according to a Fair Isaac Corporation Web site, www.myfico.com.
Where to Find a First Credit Card
Compare different credit card offers. You can compare different credit card offers on the free online resource www.creditcards.com. You can compare credit card offers in several categories. You can also compare cards based on incentives such as airline miles, gas credit and hotel credit.
Caveat
As with any financial advice, be certain to contact a financial professional about your individual financial questions. This article is meant only as general information on the subject and might not adequately answer all of your specific financial concerns.
