Whether youre a new graduate just finding some financial footing or simply someone who prefers to pull out cash rather than plastic, you might not have much credit to your name. In fact, while others might wonder â€œWhats my credit score?â€, you might be left wondering if you even have a score at all. While little credit might mean minimal debt, it can also spell problems when you do try to make a major purchase or take out a loan. Understanding why credit is important and learning how to build it are the first steps toward establishing your credit score, which can give you a bit of financial freedom in the long run.
Lack of Credit
Lack of credit card debt is a good thing, but lack of credit entirely is not. Young adults just starting out on the own are the ones most likely to suffer from this problem. After all, everyone has to start somewhere when it comes to building credit. Without a credit history, credit card companies, utility providers, property management companies, and lenders might be wary of taking you on as a customer. They cannot verify that you have a successful history as a customer. Do you make payments on time? Were other companies willing to lend to you? Such questions cannot be answered when you lack a credit history.
As a result, living life credit free may cause some trouble when you actually need to use some credit. You might apply for a credit card, only to find out that the financial institution is unwilling to take you on as a customer because youre seen as a risk. If you do manage to secure a credit card, the limit might be very low on it until you can prove that youre a trustworthy customer. Without a reliable credit score, property managers might be unwilling to lease you a flat, and you might struggle to get a mortgage if youre looking to buy a house.
If the answer to â€œWhats my credit score?â€ is zero, take time now to build some credit, which can give you more financial freedom in the future. The first credit card offer you sign up for might not be idealâ€”maybe the limit is too low. However, you have to start somewhere. Open up a card, use it monthly, and pay your balance down to zero every month. Think creatively when hunting for the right credit card opportunity. If you always get gas at the same station or shop regularly at certain stores, you might find a store-specific credit card to be beneficial. Look for credit cards that offer customer rewards programs, where you can earn cash back or gift cards, among other benefits. The key with your credit card, though, is your payment. With every monthly payment, you are building creditâ€”and upping your credit score by making payments on time and in full.
Developing a credit history does not stop with a credit card, however. If youre a new graduate looking for a place to live on your home, leasing your own flat comes with a number of credit-building advantages. Not only can you develop a history of paying your rent on time every month, youll likely also be responsible for opening utilities and other housing-related bills in your name. You can quickly build a record of positive credit when you pay your electric, water, television, and telephone bills on time every month.
Perhaps your living situation isnt conducive to working on your credit score. If not, there are other ways you can build a history of credit and boost your score at the same time. If you have monthly bills, pay them on time every month. A record of on-time payments can help you develop a credit portfolioâ€”and a credit scoreâ€”that will impress potential lenders.
Developing a credit history takes time, and a high credit score is earned, not given. The lack of any credit can pose a problem when you finally want to make that big purchase. Prevent problems before they start by making conscious financial decisions to establish good credit. In doing so, you will set yourself up for achieving your financial dreams.
Sam Jones the author of this article was talking to his neighbour who was in financial difficulty and advised him of information available at http://www.uswitch.com/credit-reports/ on a free credit report.
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