Credit Conundrums

Lots of people immediately dismiss credit as a catch 22, a necessary evil, or something that they can do without altogether. But today I would like to argue that it can actually be relatively easy, act as a positive force for our wallets, and is vital to our daily lives. Here are three cases for credit:

1. Credit Is Not Impossible to Get

This is a trick I recommend for high school students, but anyone without credit history can take advantage of it; become an authorized user. Let’s say you are a sixteen-year-old in high school and you want to finance a car when you are legally an adult. Legend has it, you will need to have a willing adult co-sign that car loan for you because of your lack of credit, or settle for a ridiculously high interest rate. Not so! Find out if your parents or legal guardians have 1-3 credit cards that:

• Have never had a late payment
• Have never been used to more than 50% capacity
• They keep no or a low balance on it

If they are willing, have your parents, grandparents, sibling, spouse, etc., make you an AUTHORIZED USER on that account. It requires no credit experience and builds you credit history from the time you become an authorized user. If you do this with 1-3 accounts, trying to keep them varied, by the time you are 18 you will have a solid credit score and your parents will not need to co-sign on any car loans! You can do this at a later age as well, as long as the credit card meets the above requirements and will continue to meet them.

2. Reaping the Rewards of Credit

Many people take advantage of credit card reward programs such as cash back, miles, and points. Anyone with the capacity to pay off the bill every month should definitely take advantage of this! To do so:

• Find out what your expenses are every month and see if you have a credit card(s) that will cover all of those expenses, then pay it off when your bill comes due!
• Having a budget helps to determine what those expenses are and if you make enough income to cover all of them.

A word of caution: DO NOT MAX OUT YOUR CARDS FOR THIS PURPOSE.

Many people max out their cards and then pay them off at the end of the month. This is not a good technique because you do not control when the credit card companies report your balance to the credit bureaus. Stick to a max of 50% of your limit and save your credit score.

 

3. Having Credit Is Essential in Our Society

Credit is not just for taking on debt. Your credit report is the replacement of a binding handshake or a test of character. Employers use your credit score to make hiring decisions. Insurance companies use it to determine premiums. Utility companies use it to require security deposits. Landlords use it to issue housing. We all need to and should have a credit score, and in order to get a good one, you’re going to need 3 accounts open and in good standing.

That credit score will not only help you get hired, or get cheap car insurance, but when it comes time to  purchase a home or take out a line of credit, no one will turn you down!

 

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