Establishing Good Credit

One of the scariest, but also most exciting parts of growing up is becoming financially independent. Learning how to be financially independent can be challenging. Building good credit is crucial.


So why do you need credit?

Good credit is important to have if you ever plan to use credit to make a major purchase, such as buying a home, car, or even something like a TV. The importance of good credit is not limited to purchases. Your credit may be used by employers and landlords as part of the selection process. Your credit reports are used to determine if you are a financial risk: If someone lends you money, extends you credit or gives you goods and services, will you pay them back? If you don’t have any credit history they will assume you are a risk.

How to establish credit (more importantly good credit)

1) Start young: Most credit cards require you to have credit to have a credit card. This means if you wait until you graduate to start building your credit it is going to be nearly impossible to get a credit card when you apply for it.

2) Apply for a card: Start with something simple like a gas card, department store card, or bank card. Using this card once a month to buy yourself a coffee and then being sure to pay it off in full will build credit and keep you out of credit card debt.

  • Gas card or department store card. They are typically easiest to get. Use it. Never miss a payment and always pay more than the monthly minimum. Apply for a Visa or MasterCard in six months to a year.
  • Apply at your bank. If you already have a debit card and linked checking account at a bank that means they have an established relationship with you can check how the account is handled. They may be willing to offer you a credit card as well. Use the card. Never miss a payment. Never charge more than 30% of the limit. Always pay more than the monthly minimum. In six months to a year apply for the card you really want.
  • Get a secured card. This is easy. A bank will give just about anyone a credit card if they put up a deposit of roughly $300, which then becomes the credit limit. After using this card responsibly for a year, it should be easy to switch to a traditional credit card.

3) Pay your bills on time: Set a budget and live within it so that when your bills roll around there is no problem paying them off in full and on time. If you are worried you will forget to pay a bill/bills set reminders a week in advance. Automatic withdrawals from your account are another way to be sure you never miss a payment.

4) Contact your lenders if you fall behind: If you fall behind on payments or are concerned you won’t have enough to pay your bills contact your lenders. They will be able to work out a payment plan with you. Never choose to just not pay or to just pay late. This will ruin your credit.

Any other ideas or questions about building good credit? Let us know in the comments below.

Melanie Lovejoy
College Works Painting

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