Having a good credit score can make or break you in today's world when it comes to a lot of different things, such as buying a car, a house, or getting the loan that you need to go to school. There are a few different ways that you can start out once you are old enough to start building credit of your own, but there are a couple of things that you need to do first.
Obtain both a checking account and a savings account. Now, this does not mean that you actually have to use the checking account to pay bills and whatnot with, because balancing a checkbook is pretty hard to do sometimes even for those of us who have experience, but if you really want to keep track of how much money you have versus how much you have going out, you will have to learn how eventually. The savings account should be getting deposits of some kind regularly, at least $20 to $50 a month, but $100 per month or more is best. Having an emergency savings fund that is equal to around 3 months of your current income in case you lose your job or are unable to work will help you maintain your credit score during that time.
After you obtain these two things and get a good start on savings, shop around for a credit card. Beware that credit cards can and will ruin your credit score in a heartbeat if you are not careful with them, so if you have any problems with financial responsibility with your checking account, forget the credit card until you are sure you can handle the responsibility. They are wonderful to have, but they can ruin you. Once you are sure you can handle it, get a card that gives you rewards for using it and try to make sure you will actually use the rewards you are given. Ask yourself where you spend the most money every month (for many people, outside of rent and food, it is gas) and try to find a card that gives you back something for spending that money.
If you are certain that you can pay off the balance every month, use the reward card for everything that you can get points or miles for that you would normally purchase. Whatever you do, do not extend yourself past what you can pay off at the end of the month. Once you start carrying a balance on your cards, it is likely that you will never stop and you will lose a considerable amount of money in interest. If you wish to make a big purchase that your card will not cover every month and it is not a necessity (like a new Playstation 3 or big screen TV), make a payment to a new savings account every week or month until you have enough money to buy it.
Once you have your checking, savings, and credit card accounts fully under your control, you can apply for that loan you need with the peace of mind that you will not only get it, but obtain a good interest rate.
College students will have an easier time building credit than non-college students. Simply being enrolled in a university is apparently good enough for banks to start offering special student-deal credit cards, many of which you can find offered around the campus. Definitely take advantage of this opportunity to quickly establish a credit profile by having a major credit card. In addition, financing your education in the form of student loans are many people's very first line of credit. Student loans are just one heck of a good deal (usually), and are an excellent way to get your credit report started.
Non-college students don't have it so easy. They will have to slowly build credit the traditional method, starting with those companies who are willing to extend credit to those whom have none. Chief among these are furniture and jewelry store financing. Those are both good bets for your first piece of credit. Low-end department stores will also usually approve young people with no credit for a few hundred bucks. Get those cards and buy some clothes on credit. Make the payments on time.
Anyone with a job can qualify for some type of car loan. So ditch the teenage beater and get yourself a nice new mini-truck or something, and finance it. If you have no credit yet, you will definitely pay through the nose in interest rate. For that reason, it's best to first establish a few pieces of credit with furniture and jewelry stores, plus those lower end department stores. Either that or have your parents co-sign the car loan. You will build credit as you make the payments on time.
After you have the car loan and a few other minor pieces of credit, it's just a matter of using the credit you have wisely for 6-12 months. (You might also want to have a gas station card for putting gas in your car, as these are pretty easy to get.) At that point you can apply for major credit cards. You should pick a half dozen or so and apply for them all at once - that way each credit card company won't know about all the other applications by seeing previous "inquiries" on your report.
You will most likely be approved for a few cards, with credit lines between $1,000 and $3,000 each. Use the cards! Pay for food, gas, minor purchases, etc. with them and make the payments on time. Don't over-use them! You want to be able to pay them off whenever you want, and in fact you should pay them all off after a few months of using them. At that point just use one of them for everyday expenses and pay the balance off each month.
In a few more months you can apply for credit line increases. In fact, you will probably start getting offers in the mail for better and better deals. Your first Gold Card will be something to be proud of.
Take good care of your credit and it will take good care of you. Credit lines can be used to finance business start-ups, moving expenses, and unforeseen circumstances. They can be a cash reserve that allows you to sleep at night - that is, if they aren't bogged down with balances. Your ultimate goal is to have a ton of available credit that you never use.
Both Dror Klar & Andrew Kasch are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Dror Klar has sinced written about articles on various topics from Satellite, The Internet and Finances. Dror Klar is a writer in the field of finances and is currently assisting those in need of , particularly in the state of. Dror Klar's top article generates over 3350000 views. to your Favourites.
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