T0day, credit has become a necessity of life. Generally speaking, it takes credit to get credit. So, how do you break into the circle?
There are several ways you can obtain your first credit. Many young people will look to their parents or other established adult to co-sign their first credit. DON’T do it! Don’t ask for someone to co-sign for you and if you can co-sign — DON’T do it! I really do say this from experience.
If something happens that you can’t manage the credit you are forced to make a decision between stiffing the person who trusted you, the debt transfers to them if you can’t pay, or remaining buried when what has happened may have been out of your control. I’m not advocating getting more credit than you can handle but the fact is, and I see it every day, events happen in people’s lives that they can’t see coming and their debt becomes overwhelming.
Your parents or already credit worthy friends are not being bad people if they decline to co-sign. They are being prudent and you are learning a life lesson. There are other ways.
Learning to save at an early age is more important than most realize. Using savings to invest in bonds, especially government savings bonds can provide you with collateral to use to start establishing credit. In my early years, I once got caught short in dire need of a set of tires. I considered cashing in some of my savings bonds but then took them in hand and went to talk to my banker. The bank used the bonds as collateral for a loan for the tires.
I was able to pay the loan back quickly which reduced the amount of interest I paid, retained the interest the bond earned and most importantly, established a clean credit report. Before I had the loan paid off, I had applied for and obtained my first credit card based on the payment history on the loan.
Make your first application for a credit card to where you bank.
If you get turned down, you can ask the bank or other institution about allowing you to apply for a secure credit card. A secure card allows you to put down a deposit of say $500 and receive a card with a matching limit. By using the card wisely and always paying on time, you will be establishing a credit history and will eventually be able to convert the card to a regular card.
Treat your credit card as an emergency fund and always keep in mind that it has to be paid, so don’t over use it.
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