Most everyone knows that credit makes the world go 'round. It is that knowledge that makes people hesitant to do anything which may adversely affect their credit. They pay cash for everything and are quite proud that they haven't missed payments on credit purchases, which would thus damage their credit. However, there is a fatal flaw in this logic: no credit is actually bad credit!
If you are a young person just starting out, you may be afraid to open lines of credit (usually credit cards in your case), as you don't trust that you will be disciplined enough to use your credit cards responsibly. If this is you, pat yourself on the back. The people most likely to run up debt that they cannot pay back do not have this fear.
If you ever want to purchase a home, you will need credit, which takes time to build. (Right now, many loans require a credit score of, at minimum, 620.) Therefore, take the risk and begin the process of building credit at your earliest opportunity. It is a simple, yet lengthy process.
Look at your budget and what you spend on a monthly basis. Next, obtain one credit card. Charge a few things a month that you would normally buy (gas, groceries, etc.) and pay the balance promptly at the end of each monthly billing cycle. As you get comfortable and learn that you can be responsible, obtain one or two more cards and use the same process.
A car loan is also a great way to build credit. If you qualify and the rates are reasonable, take a car loan as opposed to paying cash. If you cannot qualify for a car loan, save the money and see if your bank will then give you a loan against the funds you have so long as you pledge the funds as collateral.
Remember, the worst that can happen is that your fears will be confirmed and you end up damaging your credit. This will set you back, but it is a lesson learned and, either way, you will likely never be in the position to buy a home without taking the chance.
For those of you advising young adults on credit issues, the knee-jerk reaction is to say, "If you can't afford it, don't buy it." With that said, keep the above in mind. If a young person starting out is seeking your counsel, that person is already fairly responsible regarding credit, and, again, what exactly are they protecting when they have no credit to begin with?
As always, feel free to contact me at john@jw-realestate.com or 978-423-9309 with any questions.
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