DIY & How To's!
How to Build Your Credit
Let’s say you are fresh out high school, you got your first job and you want to get a credit card that will help pay for some of your expenses. But you’re afraid. You’re afraid that you’ll be forever in debt, you won’t be able to pay on time and what started out as an adventure has quickly turned into a nightmare. Your credit score has lowered and you’ve completely maxed out your card.
That is one of the reasons why I didn’t get my first credit card until after I was 20. I was deathly afraid of being in debt. But it’s not like that… unless you are not a responsible person.
Building your credit is an adult matter, yes, but it is essential in today’s world. With a good credit history, you can finance a car and even purchase your dream home! So with the future in mind, how do we start building credit now?
1. Investigate with your bank about their credit card options. Banks will give you insight on the different plans each credit card has. But focus on starting out slowly. Pick the credit card plan that best suits you. However, don’t start out with a credit card that has a spending limit of $1,000. This is excessive, and as a new credit card holder, you must first get used to paying off what you spend and doing so on time.
The representative that is helping you with the application will ask you what day of the month you would like to set up as the payment due date. This means that the day you choose will be the day you will begin paying off what is spent with the credit card. So set your alarms, write it down on your calendar, tell your friends to remind you, do whatever it takes to be reminded about paying on time. What I did to prevent from being late with paying my credit card bill was, I set my alarm a week before the bill was actually due. For example, I set up my payment due date for the 22nd. But on my calendar, I wrote “PAY CREDIT CARD” on every 15th of the month. This way, I became
accustomed to paying my bills earlier than they were due.
2. Once you have applied for the credit card and you have received the approval, start using it. I personally prefer to use my credit card for items that I cannot pay off immediately. For example, the first time I used my credit card (it had a starting spending limit of $250), I purchased a lens for my camera. This obviously only left a few dollars I could spend using my credit card. Once the 15th arrived, I had to make my first payment towards the credit card.
A common misconception about paying off your debt is that you have to pay it off all at once. That is not true. The bank wants you to make a minimum payment (depending on your credit card plan) at least. So if you can’t pay it off all at once, then just put down the minimum. JUST DON’T FORGET TO PAY ON TIME! Of course, this will probably mean you can’t use the credit card much for your next expense, but that is okay. Paying on time is what begins creating your credit. Paying on time explains to the credit bureau that you are a responsible person that will pay off your debts on time.
3. Continue spending but most importantly paying off at least the minimum on time. In about 6 months to 1 year, you can increase the spending limit on your credit card. But if you do so, be sure that you can pay off the minimum with the new spending limit. When I upgraded from $250 to $500, my new monthly minimum payment went from $10 to $15. So what happens if you don’t pay on time? When you don’t pay on time, you may:
a. Get charged a fee
b. Your interest rate goes up or kicks in (meaning now you have to pay interest)
c. You will get a bad point on your credit history.
SO PAY ON TIME ALL THE TIME!! It’s not a difficult task in life, but you do have to be responsible and think ahead of time.
Read some articles about Credit Union Banks vs Big Name Banks. Visit the USA Gov website about Credit Unions.