Credit. It’s a six letter word that packs a punch. It helps us buy a home, allows us to learn financial responsibility, and sometimes it gives us a little more freedom than we were ready for. If you’ve had a bad experience with credit before – take a deep breath and relax. Your days of fearing a number are over. You are in control of your credit – not the other way around.
So you’re thinking, “Where do I start?” Whether you have no credit or bad credit – understand that building it doesn’t happen overnight. Just like building anything else, it’s a brick by brick process. Let’s jump in!
Get organized This is the key. Without it the cycle continues. Buy a calendar or make one just for your bills. This will help you become aware of your due dates so that you make a habit of paying on time. Set reminders on your phone and/or computer. Do all three – remind yourself however you need to. Keep a wall of post it notes with payment dates.
If you get paper statements—highlight what you owe each pay period. Keep a file folder with “To pay” and “Paid” labels. If you don’t have paper statements—keep up with upcoming payments on a whiteboard. This is the easiest way to tackle debt and stay on track. It’s important. Make a system and stick with it.
Set your max spending (and stay under it) Credit cards and loans are great—they allow us the opportunity to own something we probably couldn’t before. Yet, they sometimes can feel like free money. Where we get in trouble is when we forget we have to pay everything back—with interest. So how do you control that spending?
Discipline. Give yourself a ceiling. For example, a card or company may allow $500. Tell yourself, my max is $100 and stick to it. You will still build credit and you teach yourself how to be responsible. Credit is designed to prove you are financially responsible. Use it to learn money maintenance and focus on necessity spending instead of purchasing luxury items.
Pay your balances in full when you can and maintain only a few accounts.
Keep up When it comes to your credit and payments—you are your own advocate. Know where you stand.
Consider a credit card with cushion (Secured /Authorized user) Not all credit cards are the same. So if you struggled with one variety—don’t feel discouraged. There are more options. One option is a secured card. With a secured card you pay a deposit to hold the card. Your credit limit is the amount of your deposit. Essentially, it’s a safeguard should you fail to fulfill your payments. It’s good discipline because then you understand how much money is behind your card, and you have a strong reminder to make payments because you pay into it.
Another option is to become an authorized user on someone’s credit card. Find someone who is first and foremost financially responsible. The best person to do this with is someone you can learn from. Think of them as a credit mentor who can help you spend well and keep you accountable.
There are many other ways to build your credit. These are just to get you started. Don’t wait.
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