The Beginners Guide to Credit
Whether you are building credit or trying to repair it, you need to follow similar steps. Bad or No credit has obvious faults i.e. the inability to finance things such as a car, education or a home. Sometimes bad credit can even keep you from getting a job! However, for this article we will concentrate on building credit for those of you that don’t have any!
If you are 18-21 years old and have never established credit, you need to get going on that front! You also need to be responsible with it once you get it! Here’s some steps for establishing and building credit.
Get a Job! In order to even consider building credit you have to get a job! I remember when my 15-year-old wanted a credit card “so bad”. No job No credit! Young people sometimes don’t realize that you just don’t swipe a card and get stuff. You get a bill for that stuff in 30 days and have to pay it. Try these credit building steps.
1. Read about Credit
Do your homework about credit and learn how it works. Educate yourself about the subject. Google knows everything! Know the difference between a current balance and a statement balance (link). Guess what happens if you don’t pay your statement balance in full? They charge you interest! That $5 smoothie ends up costing $7 in the end. Most teens don’t think that is a big deal, unless you do it 100 times! Small unpaid balances can cost you hundreds a year in interest.
2. Research Credit Cards
Once you have a job and have an understanding of how credit cards work, research different types of credit cards. Find a card that works for you but be practical! Don’t apply for the travel rewards card when we both know you make $11 an hour at the local pizza place. You aren’t traveling anywhere! Apply for the cash back or points rewards card. Again, if you don’t know where to start, try Google! If you are super lazy YouTube knows everything too!
3. Apply for a Credit Card
Once you’ve done the research select and apply for the card that fits your needs best.
Open a Non-Secured Card (students):
Students have several options available to help them build credit early, including student credit cards, which offer protection and perks such as rewards on spending. If you’re in school, take advantage of your student status and leverage tools designed specifically for you.
Open a Secured Card (non-students):
One of your first steps should be applying for a secured card. These cards are credit cards, except that you provide a security deposit up front to secure the line of credit. By regularly using a secured card, making timely monthly payments and practicing good credit management, you can build your credit up over time and you may even qualify to get your deposit back
4. Manage your Credit
If you only bring home $750 a month while being a part time employee and full time student, don’t make a $500 purchase! You will have to pay for other things in life, gas, phones, rent, food, etc. Maxing out you credit line is a bad choice. Managing your credit requires discipline and attention to details. Getting a credit card does not mean it’s time to splurge. You still have to have patience and save for the things you want to buy. Trust me, maxing out your card to get the newest iPhone on the market isn’t the right thing to do. Only spend what you can pay in full at the end of the billing cycle. If you aren’t sure what that is go back to step two.
5. Set a Credit Budget
Set a budget for your credit spending and stick to it. If you can only afford a $50 credit card payment, don’t spend $100. Every dollar you don’t pay in full costs you money. Pay on time. Pay your card in full on time or even better pay it off I full early! You should be able to do this if you set a credit card budget. If you didn’t (shame on you) never pay the minimum amount due. Always pay more!
See the next blog for a few more tips about building credit and credit repair. Thanks for reading!