Last week I hung out with an old friend, and I mentioned in passing how I had gotten a credit card recently in order to build credit. His response was one of disbelief that I would stoop to such a level.
At first I was a little offended but quickly realized he thought this was crazy because so many people act stupid with them. But the good news is YOU DON’T HAVE TO!! =)
Credit cards have gotten a bad rap recently–especially among young people who actually want to be smart with their finances. So many students just stay away from them completely. Which is a viable option.
Bu unfortunately, for those people, if they have no other credit history, when they do choose to go out and buy a house or try to get any other kind of loan, their rates will be much higher than those who had built up good credit for themselves.
So that’s why I got a credit card. They are not immoral. Or moral. They are….amoral. It’s just a piece of plastic that if you take care of like you do the rest of your finances will actually help you in the long haul because it will prove to the people you want to loan you money that you will pay them back–and on time.
So for those young people who have no credit history and would like to build it–go ahead and consider a credit card. But here are some dos and donts you absolutely must follow:
1. Do find the right card. For your 1st card it doesn’t have to be anything fancy, schmancy with lots of rewards and a high credit limit. Find something simple and boring. You will have time to become financially secure and smart enough to get a cool card with cash back rewards and jazz in the future. Things to watch for: interest rate (low), annual fees (none), grace periods (you want to be able to pay your balance off by the due date without any finance fees.)
2. Don’t carry a balance. Just don’t do it. If you put money on the card, keep the money in your savings or checking account to pay it off at the end of the month. Forget all together looking at the “minimum payment” box. Just pay off the balance. Every time. =) If you do this, you will not even have to worry about the interest rate because you won’t be paying any!
3. Do decide what you’ll use it for. I usually decide for that month I will use it for ____ (sometimes it’s gas, groceries, etc.) You can use it for whatever you’d like but decide ahead of time so you won’t go overboard with it. But like I said…you’re using it as a substitute for the cash you already have in your checking account. Not because you don’t have the money and you want whatever it is right now.
4. Do pay it on time. Every time. There’s really nothing worse than making a late payment on your card. Pay it at least a week an advance to steer clear of this TRAGEDY. (And it is a tragedy…it will stay on your credit report for probably 5-7 years.)
5. Don’t go over half of your credit limit. Have a limit of $1,000? Stick to under $500. I’m not the credit bureau, and I don’t know why if you go over half your limit it makes your credit score go down, but it does. So…even if you’re planning on paying it off at the end of the month (which I know you are!) don’t go over half your limit.
Five easy things to remember to build credit and help your credit score get higher and higher. The higher the score, the more people will want to loan you money and the more things you can accomplish and dreams you can see fulfilled!