Last week we talked all about what to look for when getting your first credit card and how to apply for it, but once you get your hands on the plastic there is a more important issue to address- building a good credit score.

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Establishing good credit is a daunting thought for many college students, but in reality it is a very simple concept.

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According to Investopedia, A credit score is a statistical number that evaluates a consumer's creditworthiness and is based on credit history. Lenders use credit scores to evaluate the probability that an individual will repay his or her debts. In regular English, this means that lenders use your credit score to decide if they should lend you their money, and how likely you are to be a good investment.

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Lenders typically use your 3-digit credit score to help them decide if they'll approve you for a loan or credit card. In general, the higher your score, the better your chances of getting approved. Having a good credit score can also help you save on interest rates.

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For example, those with credit scores below 640 are generally considered to be subprime borrowers. Lending institutions often charge interest on subprime mortgages at a rate higher than a conventional mortgage in order to compensate themselves for carrying more risk. They may also require a shorter repayment term or a co-signer for borrowers with a low credit score. Conversely, a credit score of 700 or above is generally considered good and may result in a borrower receiving a lower interest rate, which results in them paying less money in interest over the life of the loan.

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Of course, a specific score doesn’t guarantee that you'll be approved for credit or get the lowest interest rates, but knowing where you stand may help you determine which offers to apply for - or which areas to work on before you apply.

Some of us have already dug us into a hole with credit cards, and need to increase a credit score. This seems harder said than done, but it is definitely better to start sooner than later.

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When information is updated on a borrower’s credit report, his or her credit score changes and can rise or fall based on the new information, creating their “high” or “low” credit score.

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In order to improve a score, there are a few things to keep up to see a noticeable difference. The first and most important, is to pay bills on time. Six months of on-time payments is required to see a noticeable difference in your score, and to indicate to lenders that you are becoming a reliable investment.

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Many also suggest looking into increasing your credit line.

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If you have credit card accounts, call and inquire about a credit increase. If your account is in good standing, you should be granted an increase in your credit limit. It is important not to spend this amount so that you have a lower credit utilization rate.

At the same time, don’t close a credit card account. If you are not using a certain credit card, then it is best to cut it up and stop using it instead of closing the account. Depending on the age and credit limit of a card, it can hurt your credit score if you close the account.

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For example, say you have $1,000 in debt and a $5,000 credit limit split between two cards evenly. As the account is, your credit utilization rate is 20%, which is good. However, closing one of the cards would put your credit utilization rate at 40%, which will negatively affect your score.

 

Your credit score is one number that can cost or save you a lot of money in your lifetime. An excellent score can land you low interest rates, meaning you will pay less for any line of credit you take out. But it's up to you to make sure your credit remains strong so you can have access to more opportunities to borrow if you need to.