Tips on utilizing credit

by Beth Pearce, Vermont State Treasurer

Young adults face unique financial needs that are sometimes overlooked or underestimated. You’ve probably noticed that there are many financial products and services available to you – credit cards, different types of loans, and saving and investment accounts, to name a few. It can be difficult to know how to approach these money management tools. Here are some important tips about utilizing credit.


 Manage your credit wisely 

The moment you start earning, spending, paying bills, applying for or using credit, a record of your money habits is captured. The information is converted into a numerical score that represents your creditworthiness. Credit scores are used in many ways. It is important to know your score, why is it important, and what you can do to improve it.  

While there are many different methods of scoring credit, the most widely used is called FICO. The company FICO (actually named Fair Isaac Corporation), develops credit scoring models that are used by lenders. FICO uses a scale of 300 to 850. The higher the score, the better your presumed creditworthiness. 

Credit bureaus (Equifax, Experian, and TransUnion) collect information about you and produce a credit report. The information on your credit report is supplied by lenders, collection agencies and through public records and court documents. 

Credit scores matter

Why do credit scores matter? Because a healthy credit score is one of the first things lenders, landlords, and others look at to determine whether you will repay loans and if you are a good investment. Your credit score is used by lenders to assess your ability and willingness to pay your bills and to pay them on time. A good credit score will make it easier to obtain loans at lower interest rates on student loans, car loans, and mortgages. 

If your financial habits are viewed as risky, you may struggle to obtain credit. In the event you receive credit, a record of poor money management can cause you to pay more. Credit scores are often used by landlords when an individual wants to rent an apartment or house. Moreover, it can affect your ability to get a job – many employers now check credit history when doing background checks for job applicants.  


Credit scoring by the numbers

How does one manage your money to build credit? Let’s start with what categories are included in your credit score. As noted earlier, most lenders use the FICO score system. While the details of the FICO model are proprietary, the general categories and weightings associated with them included in your credit score are:

 35% on your payment history;

 30% on what is called credit utilization or the ratio 

of money owed to the credit available;

 15% on the length of your credit history;

 10% on the number of new credit accounts 

you’ve opened or applied for; and  

 10% on the mix of credit accounts you have 

(mortgages, credit cards, installment loans, etc.).

Making payments on time is generally the single most important contributor to a good credit score. Each credit
bureau collects information about your financial transactions and bill paying habits. 

Credit utilization is also very important. Your credit report will contain detailed information on your credit accounts, whether they are past due or in good standing, and the balances and credit limits associated with them.  If you max out your credit cards on a regular basis, or get close to your credit limits, lenders may view you as a greater credit risk.  

Other factors also contribute to your credit score. The length of credit history refers to the length of time each account has been opened and the length of time since the most recent activity. Credit scoring gives more weight to people who have used credit in a responsible manner for a long period of time. This is why young people just starting out using credit have lower credit scores. 

 The bottom line is that if you pay your bills on time and carry low levels of debt, you are on the way to maintaining good credit. Individuals without a credit history should consider responsibly using credit to start a record of effective money management. A history of repaying a variety of credit types, including credit cards, installment loans, retail accounts, and others indicates an ability to manage a mix of credit more responsibly; these points notwithstanding, you should open new accounts only as you need them, not simply to create a mix.


There are tools to help

Smart planning now, prudent use of debt and a disciplined savings plan are the keys to your financial future and an opportunity for a lifetime of financial well-being.  Money management can be overwhelming. That’s why the Treasurer’s Office has a financial literacy website devoted to giving you free, easy to understand resources. Visit to learn more. Have questions? Contact our office at and we’ll happily get back to you.