How to Build Credit and Why It’s Important
Updated: Jul 15, 2019
People may have told you that it’s important to build your credit. But what does that even mean? Why should you build credit in the first place? Is it actually that important? It’s time to learn the basics.
WHAT IS A CREDIT SCORE?
A credit score is a number that essentially shows how reliable you are at paying money back in a timely manner. The higher the number, the more reliable, or creditworthy, you appear to be.
WHY IS YOUR CREDIT IMPORTANT?
Your credit score is important because lenders will look at your credit to determine whether or not they will lend you money. These are the people or institutions who will lend you money for a home, car, business venture, etc. Your credit score will also help landlords and property managers determine whether or not they will let you rent their property.
If you never intend to borrow money for anything and never intend to rent a home, then you don’t necessarily NEED to build your credit. But that also means you’d be paying for everything in cash – your home, car, etc. So, I do recommend that you build your credit anyways because your mind or your life situation may change, and you may need to borrow money to purchase a car or a home in the future.
HOW DO YOU START BUILDING YOUR CREDIT?
If you have no credit history at all, and you want to start building it, then apply for a credit card. Credit cards are NOT inherently bad. They are a fantastic tool to help you build your credit, but they can be an absolute nightmare if you use them irresponsibly. So, let me explain how you should use a credit card.
First off, just because you have a credit card does NOT mean you should start purchasing items you can’t really afford. My general rule is:
If you wouldn’t buy it with cash, then don’t buy it with a credit card.
If you want to use a credit card responsibly, you SHOULD be paying off your balance in full every single month. That way, you’ll never have to pay any interest on what you borrow. The idea is to use your credit card like your debit card.
If you use your credit card even once a month and pay it off in full every month, then you are doing a fantastic job building your credit. It’s that simple.
CALL TO ACTION
If you do not have any credit history whatsoever and you want to start building your credit, then follow my advice:
Apply for a credit card (interest rate doesn’t matter, because you SHOULD be paying the balance in full each month and therefore avoid paying interest).
Once you receive your credit card, use it only for your necessities (gas, food, etc.). This prevents you from being tempted from buying inessential items on credit.
Pay your credit card balance IN FULL every month.
If you follow this advice, you are on the right path to building your credit. Good luck my friends. Please reach out if you have any questions at all.
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Justin Yurong