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Build Your Credit When You Are Young – Guest Blog Post!

I am excited to have my first ever guest blog post from @everylittlebit.counts. 

Here we go!

When you’re in your late teens, early twenties, your credit is the last thing you are thinking about. If you are in school, that is priority number one, hanging out with your friends, girlfriend or boyfriend and enjoying life, and rightfully so! But taking baby steps to build your credit will go a long way. Your future self will thank you.

When you are young, it is easier to build

When you’re young and living at home, it is much easier to build your credit. You have fewer expenses and there is no reason to be in debt. Your debts should be immediately paid off (unless you have a car loan).

Why is it important?

Building your credit is important because later on in life when you apply for a car loan, line of credit or more importantly, your mortgage, it will be difficult to get accepted and get the best rates if you have no credit history.

Get a credit card

Hear me out first. If you have a part time job, have a savings account (even if small), you should apply for a credit card with a maximum limit of $500.

I was against credit cards when I was in my late teens. Having worked for a financial institution, I gained knowledge and I realized it was somewhat important to have one to start growing my credit.

Credit cards are not the problem; it’s one’s lack of knowledge on how they work, which is something I strongly feel should be taught in high school, but that is a story for another day.

Having a $500 maximum limit will allow you to make some small purchases. If used correctly and paid on time it will slowly build your credit score. If you are not working or struggle with money, do not apply for a credit card. Everyone’s financial situation is different.

In October 2017, my credit score was 832, which is considered very good. This did not happen overnight. It took time, patience and paying my bills on time.

Side Note

Even if you hate credit cards, they are needed to reserve and give a security deposit at hotels. During flights, if you need to buy food or gifts, the only accepted method of payment is via credit cards. Credit cards are not the issue. The issue is people don’t control themselves and they don’t understand how they work.

Get a cellphone plan

Another way to slowly build your credit is to have a monthly cellphone plan. The monthly amount is not important but what truly is is having regular monthly payments withdrawn from your account. This will slowly grow your credit and show you can make consistent monthly payments.

Apply for a line of credit, even if you do not need one

When you really need money, banks may be reluctant to give you the loan. The key is to apply for a line of credit when you do not need it. When the moment arises that you truly need one, you will already have it. The same can be said for a credit card. Apply for one when you do not need it.

Bad Good

Build good habits

Practice the following spending habits towards building a good credit:

  1. Pay 100% of your credit card debt as soon as possible. My trick is I pay my credit card every two weeks. It allows me to keep track of my expenses and know where I spent my money;
  2. Avoid using more than 30% of your credit limit. Most experts recommend it (on a $500 limit, you should not use more than $150);;
  3. Check your monthly statement. Even if you paid your full amount, check your statement for any errors.

Summary

  1. It is very difficult to apply for a mortgage without a credit history. One of the ways to build your credit is to have a credit card (with a small limit) and pay its balance in full monthly;
  2. If you buy or lease a car, make sure you are able to afford the payments;
  3. With time and a good track record, your credit score will increase. When the time comes and you need a mortgage or a large loan, the baby steps you took to building your credit will pay off.

What do you think? Leave your comments below.

Also, if you haven’t already, go checkout their blog here!

 

 

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