Less and less Americans are becoming financially savvy. Most of the reports we’ve covered here at Financial Helpers talk about most people being big spenders, taking out loans and debt they can’t afford, and refusing to save any type of money. As a result, it’s taking a massive toll on us financially. We’re in more debt today than we’ve ever been in before.
A lot of us were never taught about the benefits of being financially responsible. As soon as we had the chance to do so, we probably ruined our credit or got caught up with a lot of debt. But for the high school and college students with no credit history at all, you get an amazing chance of starting out just right.
The easiest point to start out is the beginning, but it will take some time. A large portion of your credit score is determined by several years’ worth of on time payments. You have to be diligent and on your game. Over time, you’ll see your numbers climb higher. It’s super important to have a good credit score for many reasons.
For one, some employers look at credit scores. Showing good decision-making skills with your money and finances is important to a lot of future employers. It can also save you a ton of money down the road by cutting down the amount of interest you’ll have to pay. And when it’s time to buy a home or a car, the better score will bring down your monthly payments.
Here are a few other things you can do to build your credit score from scratch:
1) Don’t Apply Blindly for Credit Cards
When trying to get credit cards for building credit, a lot of people make the mistake of just applying for anything they can get. This is a wrong move to make. Every application you fill out that requires a credit check hits your credit as an inquiry. 10% of your credit score is determined simply by how often you apply for credit.
The thing is, you might be declined for these cards because they are above your level. Don’t go for the extremely popular American Express and Discover cards. You must have good credit and a steady income to find your way towards those. Instead, find starter credit cards. They will give you less credit to play around with and may even require a deposit to get started.
Rather than getting an inquiry hit and risking being declined, go for the smaller cards and those you have a better chance at being approved for. Yes, these cards will probably suck and have horrible interest rates, but as long as you know how to use a credit card, that won’t matter. Let’s look at what that means in the next point.
2) Don’t Go Crazy with Credit Cards
The best way to build your credit isn’t to go crazy and max out your cards every month. In that case, you risk something happening and defaulting on your payments. If you can’t make 100% on-time payments, it’s going to work against you by hurting your credit. Instead, use your credit cards sparingly. Use what you can pay off each month and you’ll avoid having to waste any money on accumulated interest and still get a 100% on-time payment reputation.
3) Learn What All the Terminology Means
When dealing with credit, there are a lot of things you need to know. What’s your interest rate and how is that calculated? What’s APR? Do you know what annual fees and minimum payments mean? There’s a lot of stuff that can really swamp you if you’re not prepared and knowledge about how the whole system works.