Establishing Good Credit

Growing up I was told by my parents, “With good credit you can afford anything”.  That was then, and this is now.  We all saw what happened with the housing bubble and what will soon probably happen with student loans.  Credit is important, but not meant to purchase things above your means.

Having good credit is important; however, using that credit isn’t always wise.  I saw an info commercial the other day for a product that cost $250.  They were offering people 12 months interest free financing.  If you have to finance $250 for a 12-month period then you already have money issues and shouldn’t be buying it in the first place.

A friend of mine had an old Ford Expedition with a couple hundred thousand miles on it.  He bought it for around two grand, drove it for 12 months, and then it broke down.  Either he didn’t have another two grand lying around to purchase another piece of junk, or he wanted something a little more reliable.  Either way he decided to purchase a used one for around ten grand this time.  He didn’t have enough money to purchase the car, so he needed financing for the purchase.  Problem was, he had no credit.  He was offered an interest rate of 13% for a car loan that was over 36 months.  An absolute ridiculous rate.  He ended up getting his mother to cosign on the loan and got it for 1.9%, very good and reasonable.

Moral of the story… You never know when you need credit.  It is important to have it established for that rare chance that you do need it.  Young people are notorious for abusing credit cards.  They spend and spend, and I can only assume they are disillusioned that they never have to pay.

Those individuals who have a good mind set around money should consider establishing credit in one way or another.  Establishing credit by signing up for a credit card is fairly easy.  Proceed with caution.  I would only recommend that someone get a credit card if he or she has income (don’t be a college student without a part-time job at the very least).  If you don’t have any credit then start with a well-known card such as through Capital One or Chase.  Charge a tank of gas on the card every month.  Circle the date when the amount will be due every month and pay off the balance.

Showing responsibility early on when it comes to credit cards will not only keep you away from high-interest debt, but it will also allow you to avoid a 13% or higher auto loan if and when you might need it.

Budget Smart, Invest Wise 

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