When you cross the milestone of turning 18, you embark on the journey of adulthood. While most individuals at this age are not entirely self-sufficient, they begin to make choices that shape their future. A critical aspect of adult life is financial wellbeing, where credit plays a pivotal role in deciding your purchasing power. Here are some pointers for beginners on building essential credit.
LOOK FOR SECURED CREDIT CARDS
To initiate your credit development journey, open a new credit card account. In scenarios where you lack credit history, this could be challenging as banks might hesitate to extend a line of credit to you. A potential solution is a secured credit card. Here, you provide the bank with a deposit that matches your credit limit. As you make and repay purchases, the significance of your security deposit diminishes as your bank perceives you as a lower risk.
BECOME AN AUTHORIZED USER
Some young adults can start building their credit history by becoming authorized users on their parents’ credit cards. It’s advantageous because it doesn’t directly affect your credit history. If your parent is unable to clear the card’s balance due to a financial crisis, you bear no obligation. As the primary account holder uses the card responsibly, it helps improve your credit history.
ENSURE TIMELY BILL PAYMENT
Your credit score is heavily influenced by your history of timely bill payments. A single late payment can profoundly tarnish your limited history when you’re just starting. Aim to pay all your bills, including credit cards, car installments, or monthly phone charges, on or before their due date. As numerous businesses currently report to credit agencies regarding missed payments, you should try your best to avoid late payments.
REVIEW YOUR CREDIT REPORT
Make sure to monitor your credit report regularly to look for any discrepancies or issues. By law, you’re entitled to request a free copy from each of the three major credit agencies annually. After receiving your report, examine the history and account information for accuracy. Contact the credit reporting agency if you notice any errors.
CONSIDER A COSIGNER
At times, such as when buying a new car or acquiring funds for college, your minimal credit history might not suffice to secure a loan. Financial experts suggest finding a trusted cosigner to boost your purchasing power. You could ask a parent or other relatives and ensure you uphold your end of the deal on repayment terms.
EXPLORE NO-CREDIT LOANS
Procuring a car without credit, even without a cosigner or sizable down payment, is achievable. Several lenders are prepared to take a chance on beginners and have reasonable expectations. You might have to exhibit financial stability by providing copies of your pay stubs to qualify for such loans.
USE CREDIT RESPONSIBLY
Once you’ve received approval for your first credit card or loan, remember to use your credit responsibly. Avoid going overboard with purchases, running up your credit cards to their limit. Being responsible is key to establishing a healthy credit history over time.
BE PATIENT
The final piece of advice is to exercise patience in credit building. It’s a long process but with persistence, the reward is a robust credit history and an impressive credit score. Over time, this will provide a positive history that will facilitate future purchases.
