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The following is a guest post by our friend John from Fearless Men. If you are interested in guest posting at Club Thrifty, please see our guest posting guidelines.
Fiscally responsible, financially conscious – these are phrases that will have a lot more meaning to you when you start building your own credit. Why? Because when credit is used it turns into debt, and it’s at this point you will begin managing your credit. Millions and millions of people have mismanaged their credit, and they lose the luxury of using credit for years after. We want to help you avoid those pitfalls.
Is It Important to Build Your Credit Early?
You’re darn right it is. Your credit rating dictates interest rates, terms, and the eventual approval or disapproval of your loan. Let’s look at a few reasons it’s important to build your credit early.
1. Major Purchases: The two biggest purchases a young person makes are – a car and their house. Your credit plays a major role in getting the best rates and terms for both. Some people say: “No credit is good credit.” This may have been true 50 years ago, but this isn’t true these days. It’s a money myth! Banks and lending institutions are credit sensitive, and having no credit history scares the pants off of most lenders. Especially with these major purchases.
2. Accessories: Along with the major purchase come the incidentals – furniture, appliances, utilities, cable. The places and businesses providing the goods and services want to see your credit rating. For instance, the utility companies will ask for a cash deposit if you don’t have a good credit rating.
3. Car Insurance: In many states your credit rating influences your car insurance rates. Yes, believe it or not, they will include your credit rating in their formula for assessing insurance rates.
4. Better Dating Material: Having excellent credit is attractive. I’ve heard that some ask for this info on 1st or 2nd dates now. With the economy crisis no wonder it’s on people’s mind.
Staying Out of Trouble and Keeping Your Score Clean
It’s extremely important to manage your credit properly. Whipping out your credit card becomes an automatic response when you want to buy something, it’s easy. Sometimes too easy, and how many people do you know who are in financial straits because of it?
Let’s look at some of the reasons you need to manage your credit properly.
1. Jobs: Some employers will factor in your credit history when applying for a job. Their reasoning is – “someone who is financially irresponsible may also be irresponsible in their job.”
2. Emergencies: We never know when an emergency arises; this is why they’re called emergencies. Maintaining a good credit rating insures that if an emergency does happen, you will have access to the needed credit/cash for that incident.
3. Business Loans: You can’t predict the future, and it just might be that you want to start your own business one day – but if your credit is bad, then that could close the book on that idea.
The Pitfalls of Mismanaging Your Credit
Many of the benefits of having good credit (covered above) go away when you mismanage your credit. Mismanaged credit can cause big money problems, and this leads to financial stress as well as emotional stress.
Bankruptcy is generally the final outcome of unmanageable debt; it stays on your credit record for 10 years.
Some families end up in divorce because of debt problems.
Credit is a wonderful financial tool to have. Building your credit early on reaps benefits far into the future…if you manage it right. The key is “only charge what you could buy with your cash on hand.” I know, easier said than done – but many have done it, and so can you.
Editor’s note: Club Thrifty has a love hate relationship with building credit. As John pointed out, using credit means going into debt, which is not something that we would advise. However, we have used debt ourselves and use our credit to our advantage – particularly when it comes to earning credit card rewards. We simply don’t recommend taking out loans in order to build your credit score. For more on our credit score stance, check out Greg’s post here.
John is the co- founder of Fearless Men, a blog for all to engage and discuss character growth, fitness, relationships and finances. John has lived in 9 countries, is an Army veteran and wants to go white shark cage diving one day. He enjoys sports, reading, volunteering and learning. He is passionate about invigorating other men to join the adventure in becoming better men. Follow Fearless Men on Twitter, Facebook or G+.