The Importance Of Having Good Credit And How To Get It

June 28, 2019 Stu Q

Cash is king in most parts of the economy today. From buying a house or car to paying for college, cash is the way to go. However, as we all know though, you need a lot of cash to do some of these things. In some cases, it is more physical cash most of us may see in five years. So then what is the alternative? Well, lending is the alternative. To get the lending though you HAVE to have decent credit in the least. Here is how.

1) Establishing Your Credit

Getting credit started is typically one of the easiest things we as youthful adults can do. Most banks will have some form of a credit card which those who are eighteen or older can get. It will have a small limit, but the reality is you don’t need that much. At first, you are going to just want to buy things on it for which you were going to pay cash for anyways. DO NOT max it out! Regardless of your wants, it will not be helpful if you are maxing out your credit card so early on. Paying it off every month is the ideal way to go. After awhile you can occasionally carry no more than 20-30% of the total available to another month. At this point you are simply trying to strengthen your “brand” of managing a credit card.

2) Get A Small Car Loan

Yes, getting a loan is terrible (if you don’t know what you are doing). However, if you are put in a place to get a small car loan, it will actually help build the strength of your credit. You would no longer just have a revolving line (credit card) but also a collateralized loan obligation pulling in. Do not go crazy and get a $25,000 loan, but instead shoot for maybe $10,000 early on in your credit building process. Make your normal payments for the first 12 months. After the first 12 months, if you want to pay it off before the term of the loan is up, you should. Having a loan and a credit card are essentially two pillars in the creation of a strong credit score. The grander either of the two are, the better your score will be.

3) Don’t Risk Defaulting On A Loan Or Credit Card

You are trying to build credit. Thus, you have to work hard at it. If you go to the trouble to start this process, you need to be sure to see it through to fulfillment. If you default on your obligations, your score is going to suffer dramatically. Even one late payment on a loan or credit card can result in a bad mark on your credit score. It can then be much more difficult to try to fix this negative mark versus just simply trying to build it up. This of course also factors in any student loans you may have. You can default on these just as easier, if not easier than others. Often these can come due out of nowhere, and will be late just as quick.

Ultimately you have to be mindful of what you are trying to accomplish. If getting a good credit score is the prize, you have to learn how to play the game strategically. This may also mean in some cases taking a hit by using a loan in place of cash. Just be sure to have a plan!