What's a credit score and what purpose does it serve? (Plus best credit card for beginners)

As some of you know, I recently got my first credit card. I've had a lot of people ask me why I chose a credit card instead of opting for a more traditional debit card. My answer is simple. I wanted to get a credit card because I want to establish a credit history and start my credit score. This is important to me because I want to eventually travel the world. having a good credit history will allow me to apply for cards that have incredible welcome bonuses as high as 80,000 points. I also want a good credit score because your score is responsible for the amount of interest you pay on loans, mortgages, and monthly payments. While I hope to never have to take out a loan, I certainly plan on buying a house and having a good credit score will save me thousands of dollars in interest. So how am I planning on getting this good score? Well, credit scores have a formula. There are two main points that are used to calculate the score and those are * Your on-time payments * Your credit usage What do these points mean?

Let's start with the simpler of the two. Your on-time payments refer to the number of payments that you have made at least the minimum on before the due date. If you miss a payment, not only do you get hit with a large fee, but your score takes a big hit too. This goes on your long time record, with late payments staying on your credit report for as long as seven years! (Although it's significance diminishes with time)

The second point is your credit utilization. This refers to the amount of credit you use each month compared to the amount you're allowed to use across all your credit cards. For example, if I have a $2,000 line of credit and I have $1,000 available to me, that's a 50% credit utilization. Credit card companies are like to see a 30% or below credit utilization rate. However, if you exceed 30% it doesn't necessarily mean your credit is ruined. If you have a high utilization one month and a low utilization the next, it will balance out. However, try not to make a habit of having a high utilization rate, as it WILL negatively affect your score if you have several months of high usage.

So, back to how I personally plan on getting a high score

* I pay my balance in full each month

*I try not to exceed 30% utilization rate

*I use Mint.com to monitor all my accounts and inform me of upcoming bills

*I opt for getting my statement by email instead of paper mail so I can't lose it

*I connect my bank account to my card so I can pay my bills at the click of a button

All of this might seem confusing if you've never held a credit card before, so if you're a beginner remember that all of this boils down to one point. Pay your card in full each month.

It's that simple.

I've never had a credit card before and I don't know where to go!

So, you've never had a credit card and want to start building credit history? There are two things you can do, depending on how responsible you feel you are with your funds. The first thing is rather obvious, get a credit card. I personally recommend the Discover IT card for beginners because of it benefits, which include

* 1% UNLIMITED cashback on all purchases

* 5% on select categories each quarter

* NO annual fee

* 0% APR for the first 14 months (This is not an excuse to not pay, pay in full every month)

* If you sign up with the below link, you will receive a $50 credit on your first purchase

* At the end of your first year, Discover will match ALL the cash back you earned that year

Click here to start your credit journey!

If you feel like you aren't capable of paying each month, or don't feel comfortable with the responsibility of having your own card, you can ask a parent or guardian if you can become an authorized user (AU) on their card. When you become an authorized user, you start building credit whenever the cardholder makes a payment, and for most cards, there is no age limit on Authorized Users. However, since you are linked to the cardholder, only go this route if you trust the cardholder, because if they miss a payment or max out the card, that reflects on your score as well.

So that's a wrap on credit cards! I will attempt to update this article with the most current information each month.

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