Learning good credit habits at a young age provides the solid background so desperately needed in the early years when establishing a good credit history is so important. Too many young people are lured into credit traps that sensationalize borrowing, but not the true cost of paying the money back. This is where a large percentage of young people fail to make the connection between good credit and regular, on time payments.
What’s more is the lack of education regarding good credit and its advantages. It seems if more young people understood the ramifications of a poor credit history, they would more likely pay their bills on time and not chance a major hit on their credit score. They must learn that to save tens of thousands of dollars in interest over a lifetime of credit, paying their bills on time – every time and not overextending themselves will ensure they won’t suffer the lingering effects of a low credit score and high interest rates whenever they make a large purchase.
Use new credit sparingly
The idea behind the granting of credit isn’t using it up right away. When a young person is granted credit, the person is entrusted with this credit and is expected to follow the terms of the credit agreement. By making the payments in full and on time every month will definitely increase your credit score. But other factors come into play, not just payment history, although your payment history is the most important. Other factors such as amount of unused credit compared to the original credit limit. If the limit is reached with no obvious attempts to pay the balance down, your credit score will be negatively affected.
Obtaining new credit if you’re a young person can be a challenge, but it’s not impossible. Before you attempt to obtain a loan or any type of credit, a good suggestion is to continue to save as much money as you can to develop a habit of saving – not spending. Once your savings account is high enough, you’re much more likely to receive a car loan if you can make a substantial down payment. If you happen to buy a car, don’t make any other attempts at gaining credit for at least one year until you have established a flawless credit history. If lenders see that you are constantly searching for more credit, they’re likely to either turn you away or charge you a higher than normal interest rate – your first look at what is perceived as bad credit and the high costs associated with it. So be stingy about good credit. Once you have it, don’t let it go!