A lot of people don’t give much thought to their credit score until they start needing to make a loan for a big purchase. If you want to avoid that kind of stress in the future, though, the best time to start building credit is as soon as you turn 18. Doing this will give you plenty of time to build a good credit score without time constraints. By the time you’re ready to take out a loan for your first big purchase, you’ll be able to negotiate rates and get the best deals. So, how exactly do you do that? Here are some tips.
Open a credit card as soon as you get the chance
Many people avoid getting a credit card like it’s the plague and they think doing so is a sound financial decision because no credit card = no debt to pay. However, using a credit card only becomes a problem when you use it for non-essentials and things you can’t really afford in the first place. Instead, use it as an alternative to cash. Don’t spend more than what you normally would just because you don’t have to pay for the stuff you’re buying up front. Don’t think of your credit card as a free pass for irresponsible spending and you’ll be all set.
Become an authorized user on your parent’s credit card
If, for whatever reason, you cannot apply for your own credit card yet, the next best thing to do is to become an authorized user on your parent’s credit card/s. Before you do this, though, just make sure the bank your parents use report authorized user activity to the credit bureaus.
Use your credit card consistently
One myth surrounding the use of credit cards and building a good credit score is that the higher the amount on your credit card is, the better it will be for credit building purposes. The truth is that credit bureaus look at the consistent activity on your card and not the amount you spent in total. So it’s better to buy your weekly groceries with your card instead of using it to buy the latest gadget today and not use the card for the next couple of months.
Pay responsibly
Paying your credit card company what you own them on time, every time is crucial to building a good credit score. Remember that your payment history towards your credit card makes up about 35% of your credit score calculation so it’s important to only use it for things you can afford to pay for down the line. Don’t miss a payment! If you encounter unexpected financial issues, pay at least the minimum instead of skipping it.
Report any and all suspicious activity
Hacking is so rampant these days, especially during the holiday season. Keep an eye out for your account and report any unauthorized charges or fraudulent use of the card. You don’t want to wake up one day with your card maxed out and not have any idea why it happened or how you’re going to pay the money you owe them but didn’t use.
Manage your student loans wisely
Your student loan is one of the first real-life responsibilities you get as an adult. Manage and pay it via an installment plan as soon as you get a job to let the bureaus know that you’ll be a good borrower and payor in the future.
A good tip to follow when it comes to using a credit card to build your credit score is to treat your credit card like a debit card. Do this and you’ll be good to go.