We are living in an era where not only having credit is necessary, you need to establish it. The purpose of credit is to show businesses and individuals you are worthy of whatever product or service they are selling – and ultimately if they can trust you will pay them back over an agreed period of time.
You have seen the commercials, overzealously claiming there is no need to worry about your bad credit, lack of credit or a bankruptcy that was filed. To no surprise they are not always telling the truth. What these commercials do not explain are the hidden costs and fees you will incur because of your less-than-superb credit. In order to avoid the headache of a poor credit score, it is beneficial to establish credit as soon as you are able to. The reason for that is simple, you will create positive money habits and because of that – a smooth progression into adulthood should follow.
Credit does not only affect your ability to take a loan from the bank for a car or house, it also holds the power to stand over other aspects of your life. Many cable companies & cell phone companies will run a credit check to determine if they feel you are worthy of their service because they are places of business and want to protect their livelihood as well.
Credit scores and reports are used as a measure of responsibility because they can tell a lot about you and Someone who is viewing your credit is looking for consistency that shows you are a responsible person with a handle on their financial life. So if your credit report reflects that you are currently in a lot of debt – even if you make your payment every month—a business might take that as a sign you don’t live within your means.
If you are just starting out and looking for a way to establish credit, or if you need to re-establish credit, one the fastest ways to get it moving in the right direction is to get a low-limit credit card to use only for gas or groceries. The catch is you need to pay if off – every single month. Do not charge more than you are able to pay back; that is what the credit card companies are capitalizing on as that is when the interest starts accruing.
If you are unable to get approved for a credit card, look into a secured credit card. With these, you are allowed to prove you are able to pay back the money – but it is your own. You essentially are borrowing money from yourself after you make a payment to the company issuing the card. After proving your ability to make the monthly payments your credit report and score will reflect that, ultimately making you more credit-worthy.