4 easy steps to get started
My first introduction to credit was being told I didn’t have any and that I wouldn’t be able to get internet installed unless the account holder had established credit. I was 17 and I had just moved into a small apartment. All I wanted was to get settled in before school started the next month.
Luckily, my parents opened the account for me and got me connected to some good ole wifi. Now, I was on my way to never-ending late night paper research and The Office binge parties with friends.
So while all was good in this particular case, I still needed to figure out this credit thing. What was it and why was it so vital that I have it? We didn’t talk much about credit in school, just about debt and loans. I always heard credit in reference to credit card debt and collections commercials and in the flashy car dealer ads who would have a spiky comment bubble coming out of their mouth shouting “LOW LOW LOW Prices on Approved Credit!”
I was always taught to save up for big purchased and buy it out right, otherwise you’d end up with debt. Well if debt is bad, then credit must be bad too, right? It must mean that if you have too much credit you must be buying too much or spending above your means. You will likely fall into a spiraling debt collections mess.
As 17-year old college student, I didn’t want to end up in debt and I thought avoiding credit was the answer. Light bulb moment! That was my problem. A credit history is like a report card that shows how you can responsibly manage your money. I literally had nothing to prove that I could be responsible and pay for internet in full and on time… this is why I needed credit…. Insert mind blown emoji here.
It all made sense now. Credit refers to borrowing: your ability to borrow, the amount you can borrow, and whether you can make your payments, according to Justin Pritchard, in The Balance. I like how he sums that up.
I talked to my credit union about establishing my credit because I didn’t want to ask Mom and Dad for help anymore. I was an adult for goodness sakes….or so I thought. They set me up on a path to begin establishing credit and helping my financial goals become a reality. And I say path because I’m still on that journey. Credit isn’t a one and done deal, it’s a relationship that you have to continue putting work into. There will be bumps and challenges but if that’s where you are today, looking to establish yourself in the credit world and set yourself up for financial success check out the steps below and give yourself some time and grace.
- Establish your credit.
- Like a thumb print, you have to acknowledge your existence in the Credit Bureau system by opening a credit card with your bank, credit union or a retail store. Just one though, trust me.
- Pay regular payments to ensure your credit history is being influenced in a positive manner.
- As long as you meet the minimum payment on time, your credit will grow. Scores under 660 are considered poor but you can still improve it with some guidance from your financial institution. You want your score to be in the good to excellent range of 670-850.
- Try to avoid opening up too many lines of credit.
- The more the merrier right? Wrong – too many lines of credit can easily spiral out of control. This means you have more loans to pay and if you aren’t careful and paying them all off, your debt to income ratio could prevent you from becoming debt free or eligible to finance a large purchase such as a car or home.
- Check on your credit annually.
- Your credit score is important so be sure to check on it and make sure it’s stable or moving in the right direction. Monitoring your score helps keep you accountable and you can also learn what actions help your score.
Remember, credit is a journey, there may be different paths for everyone but the final destination is the same. I went from being non-existent in the credit world to establishing great credit and being able to purchase a home and car in preparation for my first child. I hope sharing my experience has been useful and hopefully it’s encouraged you to seek out financial guidance from your local bank or credit union no matter where you are in your credit journey.