Getting credit can be one of life’s Catch-22’s: it is hard to get credit if you don’t already have it, and if you already have it then you don’t need it
The Need to Build Credit:
If you do not have a credit history, lenders do not know whether or not they should give you money. Without any credit history, they can’t tell if you are a responsible debt-payer or a bad risk. You need to build credit in order to prove your creditworthiness.
Who Needs to Build Credit?
Anybody without a history of using credit needs to build credit. You never know when the need for a loan will arise, and it is a lot easier to get a loan with a solid credit history. Young adults who are just starting to learn about financial responsibilities need to build credit
Ways to Build Credit:
It is actually pretty easy to build credit. Try one of the following ideas:
- Ask your bank or credit union about a secured credit card. You can make a deposit to your account and have a credit limit in the amount of your deposit. The bank takes little risk and you build credit slowly.
- Use a co-signer on your first few credit accounts. Lenders will consider the co-signer’s existing credit. The co-signer essentially ‘vouches’ for you while you build credit. Note that this is a big responsibility – you can cause major headaches for the co-signer if you don’t pay as agreed
- Use retailer programs for modestly large purchases like furniture. These programs can be easier to qualify for and they certainly help you build credit. Be sure that the retailer will report your loan to the major credit reporting companies.
- Get a credit card with any reputable institution that will give you one. Again, you have to make sure they’ll report your timely payments to the credit reporting companies. Of course, you have to always pay at least the minimum before the due date.
Advantages
Immediate Access: Need a new set of tires? Credit can help with an expensive, unexpected emergency and give you the flexibility to pay it over time.
Security: Lose cash, and it’s gone. Lose a credit card, and it can be cancelled. Also, if you report a lost or stolen card promptly, you’re protected against its unauthorized use.
Record Keeping: Your credit card statement is an itemized list of your monthly expenditures, which can be helpful when it comes to budgeting.
Convenience: Credit cards are accepted at more places than checks, and they’re generally faster to use.
Bill Consolidation: Bills can be paid automatically via credit card, consolidating several payments into a single lump sum.
Rewards: Using a credit card with a rewards program may earn you benefits like free travel.
Disadvantages
The main disadvantage to credit card usage is its cost to you in interest and fees. Wise use of credit means understanding those costs and acting accordingly. Keep track of your spending to ensure that you can repay your credit card bill in full when it comes due each month.
With thanks from About.com
