Establish Good Credit for a Good Financial Future

By: Kathryn Lively

You get them the mail every day. Sometimes, three or four envelopes come at once, all stamped with the same blaring missive. You're pre-approved for credit! Low rates available! No payments for a year! It seems like good news, and it's tempting to want to fill out every form you get, thinking you can build up good credit for the future. However, it's best not to get too carried away, lest you find yourself taking on more than you can handle.

Is it possible to establish good credit early on in life without burrowing into debt? Of course, all it takes is a bit of research and self-control. Given the responsibility of handling one's own money need not be too daunting a task, so long as you realize the necessity of keeping a good credit standing. By showing that you are able to keep good credit now will help you in the long run when it's time to buy a car or a home, or large luxury items like a boat or motorcycle. Some companies are quite fond of offering financing plans to consumers, but in the end they want to be assured that you can eventually make all the payments. Here are a few tips for establishing a good credit base for a successful financial future.

Maintaining a healthy base with a job, bank account and bills

With most financing operations, sometimes all you need is a paystub to get your foot in the door. Therefore, it's important to maintain some longevity in the workplace and not bounce from job to job unless there is growth potential with each step. Holding down a job shows retailers and financiers that you are dependable in terms of generating income, and establishing and savings and checking account tells them that you are seriously about handling your budget. Use your checking budget to keep your bills paid on time, and seed some of what is left into an interest-bearing savings account and watch the money grow. Be vigilant during bill paying time, use a ledger if necessary to keep track of when rent, water, and gas are due. Don't become too dependant upon grace periods, particularly if you need to mail bills. Even the smallest delay with the mail service can result in a smudge on your credit record.

Investments with trustworthy people

There are times you may be called to contribute money towards a large purchase or investment. Whether you are asked to help pay off a car, or share rent, it is necessary to be aware of your responsibilities. Sharing credit responsibilities with a trustworthy person, or "piggybacking" on somebody else's credit, can work to your advantage if that person has established credit. However, such ventures can also hurt you if the other person or persons consistently default on payments and leave you holding the bag.

If ever you are called to help with a large sum of money, like car payments, rent, or a business loan, read all paperwork involved and know your responsibilities. If anything looks shady to you, it is best to avoid signing. Deal with people you know and trust – piggybacking on parents' credit is a good way to establish your own.
Establish good credit with specialty cards

Before you dive into that sack of mail to collect the many credit cards approved for you, consider starting small by applying for cards for practical purposes. Obtaining a credit card for a major department store or gas station is a good way to establish credit while curbing bad spending habits. Some cards may require you to pay the monthly balance in full when it is due, so this way you have the opportunity to prove that you can be a controlled spender and be responsible for monthly bills.

Secured Credit Cards

One way people get into trouble with credit cards is overspending. Limits may be set, but it is possible to run too many charges on a card so that the monthly minimum payment becomes too much to handle. Add that you continue to spend as you pay off, and the balance will never decrease!

A secured credit cards is similar to a debit card, in that a set amount of cash from your bank account is placed in your spending queue. As you buy things, the money is deducted. All you have to do is keep track. Proper use of a secured credit card can train you well for a regular credit card with a larger spending limit. Don't think because you have a card with a ten thousand dollar limit, it means you have to spend the money. Eventually, you will have to pay it back!

Controlled spending, wise investments, practice with limited store credit cards and responsible money management all contribute to building good credit. If you can prove your fiscal maturity now, it will be easier in the future when it comes time to make a big purchase.

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