Building credit as a young adult is crucial for future financial stability. Money holds an incredible power over our lives, giving us the ability to achieve our dreams and lead fulfilling lives.
It allows us to purchase that dream car we’ve always longed for or invest in a beautiful home that becomes a safe haven for our family. However, many people don’t recognize just how important our credit is in making our dreams a possibility.
Having good credit score can open up a whole new world of possibilities that we never even thought possible. It allows us to get low-interest loans, favorable mortgage rates, and even better job opportunities. And really, that’s just the start.
By taking the time to learn how to build good credit through responsible financial habits like making payments on time and keeping our credit utilization low, we can gain access to a world full of potential.
These little steps you take now are stepping stones to building a brighter future.
It’s truly empowering when you learn that you can take control of your own financial future and make your dreams a reality!
So, let’s get started!
Table of Contents
1. You NEED to Understand the Basics of Building Credit
What is a Credit Score?
This is a numerical representation of your creditworthiness, ranging from 300 to 900 in Canada. A higher score indicates better creditworthiness.
What is a Credit Report?
This is a detailed record of your credit history, including payment history, credit limits, and outstanding debts.
What is a Credit Utilization Ratio?
This is the percentage of your available credit that you are using. Aim to keep it below 30% to maintain a good score.
2. Start with a Secured Credit Card
A secured credit card is a great option for building credit because it requires a security deposit as collateral. This means you can start building credit without needing a good credit history or a credit check.
Make sure to use your card wisely by only making small purchases and always paying off the full balance on time each month.
3. Become an Authorized User
If your parents or guardians have good credit, you can ask them to add you as an authorized user on one of their credit cards. This can help you build your credit history and improve your credit score over time.
Make sure the card has a good payment history and low balance. This will help build your credit history.
“Remember to be responsible. This credit card isn’t actually yours; it’s just a tool to help you establish good credit and demonstrate that you’re a responsible spender, just like the cardholder.”
4. Apply for a Student Credit Card
Lots of banks have credit cards just for students. These cards usually have lower credit limits, but they’re a great way to start building your credit history.
Before choosing a credit card, make sure to carefully read the terms and conditions and compare different offers. Look for a card that doesn’t have an annual fee. Try to steer clear of cards with rewards programs because they can tempt you to spend more money, especially if you’re limited to shopping at specific stores. Instead, focus on finding the best deals and prices.
5. Pay All Bills on Time
Paying your bills late can really have a negative impact on your credit score. Make sure you pay everything on time.
Don’t forget to set up automatic payments or reminders so you never miss a payment! It’s a great way to stay on top of your bills and avoid any late fees.
6. Keep Credit Balances Low
Having high credit card balances that are close to your credit limit can really hurt your credit score.
Aim to keep your credit utilization ratio below 30% by paying off balances regularly or making multiple payments throughout the month.
7. Avoid Opening Too Many Accounts
Applying for and opening multiple credit accounts within a short period of time can make you appear risky to lenders.
Only apply for credit when necessary and avoid opening unnecessary accounts.
Soft credit checks will not affect your credit, but hard checks do.
8. Monitor Your Credit
Regularly check your credit report to ensure it is accurate and to identify any mistakes or fraudulent activities.
You are entitled to a free credit report annually from each of the two major credit bureaus (Equifax and TransUnion).
9. Stay Disciplined
Building credit takes time and responsible financial habits.
Avoid maxing out credit cards, overspending, or accumulating unnecessary debt.
10. Consider a Credit-Builder Loan or Secured Loan
Credit-builder loans are a great way to establish credit. It allows you to take on debt and to show that you can responsibly make fixed monthly payments to build credit. This shows lenders that you are responsible and can manage your finances effectively.
Secured loans use collateral, such as a savings account, car or mortgage to secure the loan and help you establish a good credit history.
Building credit takes time and dedication, and you will get there! It may feel like a slow journey at times, but each step you take towards improving your credit score brings you closer to your financial goals.
Start as early as possible with perseverance and responsible money management. You will be laying the groundwork for a brighter future filled with exciting opportunities and financial freedom.
Celebrate every small victory along the way, because they all contribute to the bigger picture of your financial success.
Thank Your Credits: Photos by Dom J and Ylanite Koppens on Pexels.