 TITLE: A Guide to Establishing Credit for the First Time CONTENT: Common Mistakes Young People Make When Building Credit\n------------------------------------------------------\nBuilding credit doesn't need to be difficult, but misconceptions can set you back and cost you money. Young people are often brand new to credit and may be particularly vulnerable to believing credit myths and making mistakes. Here are actions you should avoid:\n*   **Missing payments.** Even one late credit card or loan payment can negatively impact your credit. Setting up automatic payments could help you avoid accidentally missing a payment, but make sure you have the funds in your bank account to pay the bills. Also, if you fall far behind on payments—including utility, phone, medical and other payments—your account could be sent to collections, and the collection agency may report your collections account to the credit bureaus.\n*   **Forgetting about closed accounts.** Similarly, if you close an account that has a balance, such as a utility or cable account when you move, make sure to pay off the balance. Leaving the bill unpaid could result in the account getting sent to collections.\n*   **Taking on too much credit card debt.** Access to a credit card leads some young people to spend more than they can afford to pay off each month. Carrying a balance leads to interest charges, and having a high balance can hurt your credit scores. It's best to treat your credit card as a debit card and only use it for purchases that you can afford to pay off.\n*   **Not paying off credit card balances.** You don't need to maintain a credit card balance to build credit. On the contrary, it's best to pay your bill in full each month to avoid interest charges. Also, paying off your credit card bill each month keeps your credit utilization ratio low. Your utilization ratio, or rate, is the amount of credit you're using compared with how much you have available, and it's an important factor in your credit score. Experts recommend keeping your utilization ratio under 30%. So if you have a card with a credit limit of $1,500, always keep your balance under $500, and pay off your balance when you pay your bill each month.\n*   **Submitting back-to-back loan applications.** When a lender requests your credit report from one of the credit bureaus to make a lending decision, it's called a hard inquiry, and it could lower your credit scores. Multiple hard inquiries can increase the negative impact, so be cautious about submitting one application after another. This is a red flag to creditors, who may see your many applications as a sign of financial distress. This translates into risk, which most lenders try to avoid.\nThere is one exception, however: Most credit scoring models don't ding your score when you're shopping for one type of loan, such as an auto loan, because looking for good terms and the best interest rate is considered good practice. For example, with FICO® Scores☉ , multiple auto loan, student loan or mortgage hard inquiries only count as a single inquiry for scoring purposes when the inquiries occur within a 14- to 45-day window (depending on the type of FICO® Score). END