How Important is Credit?
This is such a great question that numerous people ask!
Well, let me tell you that it all depends on what you are trying to do in the near future?
Have plans on "Adulting" soon?? IE: Buying anything of large value: a house, a car, renting an apartment, now even getting certain jobs.
If you plan on doing any of these things in the near future, then Credit is not only important but vital for you and your future lifestyle!!
So the short answer is Credit is extremely important!!!!!
It impacts what you are able to buy, afford, and how much you pay monthly on a certain item. The difference between good credit and bad credit could literally be hundreds to even thousands of dollars a month depending on what the item is! Not only this, but it also can determine if you can even be considered for certain products or services as well!
So I don't know about you, but I would say that it's pretty freaking important!
How to build credit:
Building credit takes time, so it's important to begin building your credit before you really need it.
If you don't have any credit right now, don't fret! However it would be wise to start learning about what it is, and how it can, and will impact you in the future.
1. Learn and investigate before starting
Do not jump into something before you know more about it! Do some research and understand more about different types of credit and what will work for you and how it will help you. Also, do not open a random credit card from the mall or a retail store just because you can save an additional 10-30%!! This does not necessarily help you and can in the end hurt you.
2. Start Small
As always do your research and discover what works best for you. Some suggestions would be to understand what you would use and would be beneficial to your lifestyle.
Several different types of credit can get you started and "in the game". So know what is for you.
For example if you Needed a car, then an affordable used car or potentially an affordable lease (be careful with leases) would get you in the credit game and allow your credit profile to start building.
If a car is not for you and you do not need one/have a paid off one then better for you!
Doing your research on a solid beginner credit card from a "Tier 1" or "Tier 2" bank would be your best bet on getting started with credit. These would be your large banking institutions like Chase, Wells Fargo, and Bank of America.
Getting in with one of these and building that solid relationship with them will take you far.
3. Be a responsible human!
As best as you possibly can make sure that you DO NOT OVERSPEND, MISS PAYMENTS, or MAKE LATE PAYMENTS on any of this new found credit that you just received.
This is beyond detrimental and puts you in a quick and large hole that you will then have to crawl out of.
If you are afraid you may be reckless and overcharge or over spend on this new card, then only use it for extremely small purchases ie: gum, fast food, a soda, a scooter ride (bird/lime) etc. Do this until you can get in the habit of keeping track of expenses on your card and in general, and also only swipe your credit card for things that you know you can pay back and afford immediately.
4. Pay the balance in full every month.
As stated in # 3, this is very important! Doing this will help build a profile on your credit report of responsible credit use and reliable payment.
If you do just these 4 things you will see your credit profile go from "baby credit" to then developing and becoming "teen credit" (see what i did there!). This is a great and crucial first few steps!
A few additional tips would be:
Stick to your payment schedule. … never pay just the minimum! Pay at least $10 more than the minimum if you cannot pay the whole amount off.
Don't use all the credit available to you. …keep your balances low, under 20% utilization debt ratio. (This is the amount of credit or debt that you used on your card. The lower this percentage the better. IE: if your credit limit is $1,000 then you really do not want to spend more than $200-$300 max on it. This makes you look very safe and low risk to the creditors.)
Student Loans count as a type of credit and reflect on your credit profile so pay on time!
A credit report is a snapshot of how well you manage what you owe. Whenever you use credit wisely, that information can be included in your credit report
The Breakdown of how creditors score your credit profile is as follows:
35% payment history----- Do you pay on time? It's as simple as that!
30% of your FICO credit score is based on your credit utilization ratio — a measure of how much of your credit limit you're using!
15% length of history----- How long have you had certain credit? Measured in time, years and months. They average this out.
10% new credit----- Have you applied for a bunch of new credit recently? This can be a red flag to creditors!
10% types of credit used----- They look at the variety you may have: Autos, homes, Credit cards, retail junk cards, student loans, etc.
Whether you are new to the credit game or looking to make a new and fresh start from a shaky beginning, you definitely can create an excellent credit profile just by understanding these simple things and sticking to them!
Building your credit profile to a mature and professional adult phase is not rocket science, but it is a process of learning the do's and don'ts and staying disciplined within them to get you there.
Anyone can do it and that means YOU can too! Learn as much as you can, follow these beginning steps and be a responsible human!
Cheers to having great credit profiles and reaping the numerous rewards for years to come!