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How to Begin to Build Good Credit and Why It Matters

Building credit sounds about as fun as sitting in traffic. It seems like a painfully slow process that’s easy to neglect. But if there’s one thing you need to keep on top of, it’s your credit. Why does good credit matter? It tells banks and money lenders whether they can trust you with a loan; whether or not the money they lend to you will get paid back. Good credit can help you get approved for rents, mortgages, and loans. It can also provide you with lower interest rates and higher spending limits.

How to Build Credit

At first glance, credit looks like a which-came-first situation. You need good credit to qualify for better credit cards and loans; but if the only way to get the best credit is to have some to begin with, how do you start? If you don’t have any credit history, here are a few ways to establish credit without any credit history.

Beginner Credit Cards

Credit companies offer first-time credit cards for students and people without credit history to help them build it. Some of these offer rewards packages like cash back, no annual fees, and 0% APR (APR, by the way, means annual percentage rate, which is the interest you pay per year). So, essentially, it’s a low-fee card. Keep an eye out for other perks, too, like no transaction fees and low cash advance fees. And be aware that beginner cards also have lower limits on how much you can charge to help you become responsible with credit.

Authorized User

If you have family or close friends who can help you out, they may authorize you as a user on one of their credit cards. Though the card is in their name, you can now use it to your advantage and boost your credit. Be aware that some cards charge an extra fee to add authorized users. The important thing to remember is that if you opt for this route, make sure you don’t miss any payments or accrue significant debt. The card owner will have to repay it all. And it will reflect poorly on their credit scores, as well as your own.

Use a Cosigner for a Loan

This way to build credit is almost the exact same as the authorized user. Only here, instead of vouching for you with a credit card, it’s a loan; maybe it’s for a car, maybe it’s for online training programs. This is a pretty low-risk way to establish credit. Simply make the monthly payments on time and in full.

Make Your Monthly Payments

Always make your monthly payments on time and in full. This is one of the easiest ways to build good credit. In fact, credit companies will offer you the option of an automatic payment schedule online to help ensure you keep up. If you do miss a payment, you’ll be penalized and your credit score takes a hit. Then, you’re back where you started.

It might be easy to say you’ll make your monthly payment without fail. But life happens. Expenses add up. Sometimes you have to shell out for something big. Use your credit card sparingly so you can pay it off. Don’t live beyond your means. A credit card can seem like free money, until it’s all gone.

Why Good Credit Matters

To build good credit, you need to be patient and dedicated. You need to budget all your costs carefully and spend wisely. Set a realistic budget and stick to it. Down the road you may want to purchase a car.  You may want to buy a home. If you take courses online, and get yourself a good entry level job, you may want to pursue more schooling. The process of getting all of these things you want, and perhaps even more, is much easier with good credit history. You’ll start small, but you’ll get there.