How to Establish Good Credit
Good credit is essential to all of your future financial decisions. To establish good credit, you must use credit wisely. But the trick can be getting your first opportunity to even touch credit. Finding a credit card to practice with can be a bit challenging at times, although many credit card companies are desperate to throw credit cards at you whether you know what you’re doing or not.
Make a Plan
Your first step to establish good credit it to plan how you will be using your new credit card or account. For example, gas cards are an excellent way to establish a credit basis. You use the gas card to fill up your car with gas every couple of weeks. The bill comes and you pay off the card completely using the cash you would have spent at the gas station.
This is exactly the way credit cards should be used. If you open a regular credit card suddenly there is temptation to buy things you might not have the cash to pay for at that moment. Maybe an open bar tab or a few new clothes would make your week better. So you use the credit card. Soon you have a balance that you can’t pay off and you’re stuck in the cycle of making minimum payments for years.
While making minimum payments won’t hurt you too badly, the balance on the card and other balances you wrack up over the years that you can’t pay anything off can send you into a serious debt spiral. This is why the average household has over $9,000 in credit card debt. Don’t let that be you.
Apply for a Card
Your next step is to apply for a credit card. If you want to test yourself and your initiative first, start with a simple gas card or a credit card for a clothing store you already shop at. Then pay off the small balance at the end of each month and continue doing so until you have a good handle on how credit cards work.
Then, when you have some extra spending money, apply for a regular credit card spend no more than you would in cash every month. Send your cash to your card at the end of the month to pay off the balance and you’ll be on your way.
Alternatives to Credit Cards
There are a couple of alternatives to credit cards if you’re having trouble getting set up with your own account. When you open a checking account, you often have the option of getting a bank debit card. These cards act like credit cards but pull money directly from your bank account as if they were a check. Using a debit card allows you to ease into credit cards without worrying about tracking your spending or going over the limit. You can see each transaction online every day at your bank’s website.
Another option is to get a credit card with your parents. Some credit card companies offer dependent credit cards to help get you started. These are especially good for individuals under eighteen as they can teach you about using credit cards, simplify your purchases, and give (and the bank) the safety net of your parent’s bank account. Of course the tradeoff is that your parents can see everything you buy, but that might be a good system to help keep you on track.
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Posted in Business & Finance, Money
