Establishing Credit Early
At an early age I learned the value of having a good credit score. I knew you needed a good credit score to purchase a car, get a mortgage and possibly even a job. I always thought it like a crippling feature of society, but a necessary evil nonetheless.
Trying to get credit is like trying to get your first job. Too often when one applies for their first job they find that they need experience for the job. Well, the point of applying for the job is to get the experience you need for the job. It is a self-perpetuating cycle that plagues our society.
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This is very similar to trying to grow credit. An easy way to grow credit is to get a credit card, make regular purchases and make regular payments. But, in order to get a credit card, you need a credit score, something the bank can use as a justification they can trust you will be able to pay off your balance. At 18-years-old, I did not have a credit score, but I knew somebody who did.
As with loans and mortgages you can have a co-signer, somebody who the lender can use as a fallback if you default on your payments. This same concept works with credit cards. I was able to speak with my sister, who was 26 at the time and had a near perfect credit score, and convince her to co-sign a credit card for me with a $1,000 limit, pretty standard for today.
Read More >>> How Can I Build Credit With No Credit?
Once I had the card, it was up to me to be responsible, make regular purchases I knew I could pay off and keep up this cycle. Three years later, at 21-years-old, I was finally able to remove my sister as a co-signer. I have refused to increase my limit in order to avoid the potential for exceeding a balance that is too far beyond my control. And thus, my credit score was finally at a level where it was “self-sufficient”.
At 21,I am already able to act as a co-signer, which I did for my younger sister when she went to lease her first vehicle. She was in the same position I was, having no credit, but seeing an opportunity to build some.
This was an obvious risk on my part because if she defaults on a payment, it would damage my credit score. However, just as my older sister had helped me grow my credit score because she trusted me to be responsible, so too have I decided to continue the cycle. Sometimes we take necessary risks in order to pay it forward.
Lessons Learned
- Establish Credit Early. Find someone who can teach you how to establish credit and educate you on the importance of using credit wisely.
- Know Your Limits. The purpose of credit is to establish a financial reputation for major purchases that may require credit. Use credit wisely and avoid carrying a balance.
- Check Credit Report and Score. Get in the habit of knowing what’s in your credit report even if it’s just one credit card. It’s good practice to protect you identity.
- Pay It Forward. I was helped early on and doing the favor for another.
Read More >>> How can I get my free credit report?
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The post The Important Lesson I Learned About Establishing Credit Early appeared first on The Smile Lifestyle - Phroogal.