Understand your Jargon!
Collateral - An asset to give if you don’t repay a loan.
Limit - The maximum amount of money that a person can spend. on their credit card.
Balance - The amount of money a cardholder owes their credit card issuer.
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Whenever people ask Olivia how she enjoys so many financial perks, she explains that it all started with building her credit from the ground up. Starting from scrach and responsibly building her way up, Olivia gradually earned the strong credit score that now opens so many doors for her.
How she built credit
When Olivia first started thinking about building her credit, she quickly realized that getting a credit card could be a straightforward way to begin. Since she didn’t have any credit history yet, she explored her options and discovered that a secured credit card might be the perfect starting point. This type of card required her to put down a cash deposit as collateral, which gave the bank security in case she couldn’t pay her bill. Despite this extra step, the card worked just like a regular credit card, allowing her to make small purchases and, importantly, pay off the balance in full every month. This practice would show lenders that she could manage credit responsibly.
She also learned about student credit cards, which were specifically designed for people like her—students with little or no credit history. These cards often had lower credit limits, but that made them a great tool for learning how to manage credit without the risk of overspending.
As Olivia started using her credit card, she quickly realized the importance of paying her bills on time. She learned that payment history was the single biggest factor affecting her credit score. Each time she paid her credit card bill on or before the due date, she was actively building a positive credit history. However, she also understood that even one late payment could seriously harm her credit score and stay on her credit report for years. This understanding made her especially diligent about staying on top of her bills.
Another crucial aspect of building credit that Olivia focused on was keeping her credit utilization low. Credit utilization is the percentage of her available credit that she uses at any given time. For instance, if her credit card had a $1,000 limit and she was carrying a $300 balance, her credit utilization would be 30%. She learned that keeping this percentage below 30% was key to maintaining a healthy credit score. To stay within this range, Olivia made sure not to max out her credit card and kept her balances low relative to her credit limit.
Her mom, who had always been responsible with her finances, inspired Olivia to consider another strategy: becoming an authorized user on her mom’s credit card. By doing this, Olivia wouldn’t be responsible for paying the bills, but her mom’s positive payment history would be reflected on Olivia’s credit report as well. This could give her credit score an extra boost while she was still in the process of building her own credit history.
Additionally, her mom recommended something called a credit-builder loan, which some banks and credit unions offered specifically to help people establish credit. With a credit-builder loan, the money Olivia borrowed would be held in a savings account while she made monthly payments. Once the loan was paid off, the money would be released to her, and the positive payment history would be reported to the credit bureaus, further helping to build her credit.
Whether it’s being able to qualify for better credit cards with rewards, getting lower interest rates on loans, or having an easier time renting an apartment, Olivia’s careful and responsible approach to building credit had paid off. She’s proud of the financial foundation she’s built and knows that the habits she’s developed—like paying bills on time, keeping her credit utilization low, and exploring different ways to build credit—will continue to serve her well in the future.
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