The standard advice about how to build credit is to get a credit card and use it responsibly. This line is parroted...
When most people think of a good credit score, it’s usually because the purchase of a home is on the horizon. They understand that proof of good money management skills matters to a prospective mortgage lender. However, building and maintaining good credit is more than just “How much house can I afford?” Building a solid credit history is a skill learned early, practiced throughout your life, and it pays off in six ways:
1. A credit history represents your financial footprint
It explains to financial institutions, (lenders, credit card issuers and anyone interested in investing in you, lending to you or partnering with you) the kind of relationship you have with money.
2. You don’t want to pay cash for everything
You may need to have credit cards when cash is not feasible. If you own a business, you may want to use credit cards and commercial lines of credit in order to purchase goods and services and maintain cash flow. A good credit history provides a lender with the assurance that you are trustworthy with their money, and will repay your debts on time.
3. A house isn’t life’s only big ticket item
You need transportation, and unless you have tens of thousands of dollars available to pay for a car, one or more auto loans are in your future.
Planning for the education of your children? The cost of that education ranges from just over $17,000 for a two-year degree at a local college to over $50,000 for a four-year degree at a private school. Many parents seek a combination of work, scholarships, grants and loans to help their kids fund the costs, and the better the credit history, the lower the interest rate on the loans.
Most cell phone plan providers, utility companies and car rental agencies either charge higher rates or won’t provide service at all without a co-signer if your credit history is poor.
4. Building credit means learning to save and spend wisely
The offshoot of building a credit history is understanding the difference between wants and needs. Creating a strong credit history doesn’t mean you can’t enjoy yourself; it emphasizes saving where you can so you can spend where it matters most. It enforces the idea of setting up a budget on paper or computer software, tracking where your money goes every month, and paying into your savings accounts first.
5. Speaking of savings accounts, credit yourself with several
It’s an excellent idea to set up several specialized accounts beyond the savings and checking account. You can have a travel fund, car fund (for repairs and replacement), retirement fund, investment fund, emergency fund (at least six months’ salary in this one) and a fun fund (for meals out, entertainment, bar crawls and any pastimes that make you happy).
6. Employers look at more than just your job history
Your prospective boss may be very impressed with your resume, but the HR department may be checking something else – your credit history. Employers consider a financial background check to be just as important as a criminal check, because they can compare information on one against the other. It also gives them a clearer view of your character. Your credit history provides a road map of where you’ve lived, you previous employers and where you’ve spent money. It also highlights whether you’ve had major money issues, such as missed loan payments, loan defaults, a history of bad checks, credit delinquencies or anything that may be a tip off to the possibility of fraud or embezzlement. A good credit history frames you as an ethical individual, honest on your resume and trustworthy on the job.
Information appearing in this article is obtained from sources we believe are reliable. The information may not be a complete statement of all available data and is not guaranteed as such. Marine FCU is not responsible for the contents of this article and advises its membership to investigate claims before following the information provided.