Excessive debt has become a hot topic, whether incurred by education expenses, credit card balances or major loans for big ticket items, and it has driven the younger generation in the direction of avoiding debt as much as possible.
While it’s beneficial to maintain a balanced budget and not live beyond your means, living completely debt free may also damage your credit scores since you won’t have any credit history recorded.
The New York Times found last year that 16 percent of people aged 18 to 29 had no credit cards at all, and were at risk of not building any credit which is essential down the line in securing any type of loan. Whether you are a younger person or the caretaker for one, it’s essential to build credit the right way and early on. When it comes time to purchase a home, for example, a good credit score is going to come in handy.
But like Rome, good credit is not built in a day.
Starting with a Solid Foundation
An effective way to start building good credit is with a charge card. Every time a payment is made, it positively impacts your credit file and ratchets up your score. A good tactic is to use the card only to the extent that you can pay the balance at the end of the month.
The longer your history of demonstrating responsible use of credit, the more evidence there is to show creditors that you are a good candidate to extend a line of credit to. For students, there are also a burgeoning amount of attractive options for starter credit cards. According to DailyMarkets.com, many companies offer incentives for student credit cards such as cash back on particular purchases or rewards for maintaining a high GPA. Make sure to also check out the varying rates available and any special offers on interest-free periods.
There are websites that aggregate the vast array of credit card offers, allowing users to do side-by-side comparisons of what best fits their needs. Having debt isn’t necessarily a bad thing, as long as it doesn’t exceed your ability to eventually pay it off. Using a card to pay for groceries which you then pay off at the end of the month is a great idea, and will someday help if you ever want to purchase a big ticket item, like a home or a car.
Keeping on Top of Your Score
There are many factors that go into determining your credit score, and monitoring changes to your file is essential. Under federal law, you’re entitled to a free credit report score once a year.
This is a good start, but it’s only a basic monitoring tool. Something as simple as too many credit inquiries, for example, can bring down your score, regardless of whether or not you actually open a new line of credit. There are companies that offer services which will alert you to any changes to your file on a daily basis, and allow you to closely monitor your own credit profile.
There are also more obvious concerns, such as identity theft, which will be caught quickly as long as you’re paying attention.
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