Establishing Credit as a Young Adult
October 30, 2018
Establishing a good financial history is important. It creates financial power, making you more desirable to lenders in the future (given you also have a good debt-to-income ratio and other factors a lender is going to examine). It’s easy to start out on the right foot if you follow these simple steps. Being disciplined with your spending and not over-indulging in the desire to “buy now pay later” are also important!
1 - Pay your bills on time! Make a good track record for paying bills on time and avoiding costly interest and late fees. If you struggle with remembering when bills are due, set up automatic payments so they will always be paid on time.
2 - Use your credit card…and pay off the balance every month. This gets you in the habit of not spending more than your means when you force yourself not to carry a balance. Don’t max out the limit. Don’t open too many credit cards, but it’s good to keep one or two that have a good credit limit and will give you some incentives like cash back or travel points.
3 – Use a credit card for daily purchases in lieu of a debit card. If someone fraudulently uses your debit card, you could be liable for the loss and your funds could be drained, as opposed to a credit card where charges are most likely to be dropped and credited back to you quickly. A hold on your bank account while debit purchases are investigated by your bank could make it hard to pay your rent or utility bills.
4 – Piggyback on your parent’s good credit. If you’re a young adult with no credit but your parents have great credit, you can get a jump start by co-signing on a credit card or small loan. As long as bills are paid on time both parties can benefit from that credit boost.
