Majority of the young adults don’t know how credit works, let along what their credit score is. As per the Consumer Federation of America, American consumers between the ages of 15-34 know nothing about who uses credit score, what credit scores are and the data on which the credit scores are based when compared to other adult Americans. This financial ignorance can leave some young adults unprepared to apply for car loans, home loans or even get an apartment without the signature or assistance of a co-signer. Without an established credit history, it is even more difficult for the creditors to assess the credit risk of a person. However, even if you’re a young adult, remember that it’s never too late to become a responsible credit user and establish positive credit history.
Building good credit is a must, irrespective of whether you’re young or already an adult. It is good credit that helps your qualify for auto insurance, loans like mortgage and car loans, rental applications, apartments, cell phone plans and even a job. Nowadays, there are employers who check the credit report of a potential employee only to be sure about the fact that the person who is about to be hired into their organization is financially responsible. So, being a young adult, you can well understand the crucial importance of building good credit.
Getting started with building credit – The tricks and techniques
How to get started? The Credit CARD Act, most of which came into effect in 2010, changed almost every rule of the game. However, if you put it simply, it all comes down to being responsible about your finances and credit usage. An eminent financial analyst explains how students or young adults can effectively build good credit. Let’s check out what they recommend.
Be an authorized user on your parent’s account: The director of a Phoenix-based debt service organization, Mike Sullivan, always advises to parents that when the student is going off to college, unless you’re 100% sure that he’s responsible enough about credit card usage, the first credit card that you should give them is yours. If you make the mistake of gifting your child with his first credit card before he sets off for college, you will soon confront with a kid who has drowned into credit card debt and has spoilt his credit score. Although debt consolidation loans are there to help a debtor get out of debt, but the impact on the credit report can’t be erased. Therefore, it is best for a teen to be an authorized credit card of their parents.
Open your own credit card: Yes, if you can offer proof of income, it may be the right time to apply for a card in your own name. The belief that credit cards are always meant to spoil your financial habits is indeed a myth. Unless you start using your own credit card responsibly, you won’t be able to establish positive credit history. In the post Credit CARD Act era, most credit card issuers are no longer clamouring to offer a credit card to the college students. So, you should know that once you receive a card that is all yours, the responsibility of handling it properly is entirely on your shoulders.
Use the credit card occasionally: Since on-time repayments and responsible card usage will help you build a good credit history, don’t leave the plastic always in your wallet. When you always carry it with you, you may not be able to resist yourself from the temptation of buying something with credit that you can’t buy with cash. This is the worst habit that leads users to debt and hence if you want to avoid it, don’t carry your credit card while you go out for shopping. Credit cards are not like grants, that you receive the money and you don’t pay back. They’re more like loans and they carry outrageously high interest rates. Deal with them watchfully.
Pay off your balance each month: When you’re initially building positive credit history, try your level best not to carry balance on the card. In fact, those who are knee-deep in credit card debt are the ones who carried balance on their cards from one month to another. If you’re earning an allowance or a part-time income, know your financial ability so that you can spend within your affordability. Use the card only for those purchases that you can afford to pay back. Live within your means, especially when you’re a young adult using a credit card.
Therefore, when you’re a parent of a college-going kid, you should incorporate enough financial information into him/her so that he thinks twice before taking any wrong financial step. Make him financially aware so that he never incurs debt and spoils his credit score.