The Importance of Good Credit
In our society having good credit has almost become a necessity. It may not seem logical to you, but a good credit score can reduce what you pay for car insurance. It can even make the difference whether you can get a job or rent an apartment. It is used to determine how much you pay in interest on house or car loans. The logic is that if you have good credit, you are probably also a responsible person in other ways. That is why your credit rating matters in contexts you would have never thought of.
How to Establish Credit
So how do you get a good credit rating? Well, the reverse is also true. If you are financially responsible, you will be rewarded with a good credit rating. This article is about how you go about getting that when you are first starting out. Years ago, no credit usually meant good credit. You were assumed innocent until proven guilty. Getting your first loan approved was pretty easy. Those days are basically over. Many are now required to take some kind of action to establish a good credit rating and one way to do that is to get a credit card. How to go about that will be the topic of discussion for another day.
The Danger Zone
Credit cards make it easy to pay for all your everyday purchases. All you have to do is pay one large bill at the end of the month. That is how it goes for most of us anyway. Of course there is a dark side as well. The convenience can lead to big trouble. For some, it is far too easy for that bill at the end of the month to become much bigger than they can comfortably handle. The result could be a vicious and out of control cycle of debt that is difficult to break. How do you know you will not end up like them? How do you know if you are ready for a credit card?
Are you Responsible in General?
The banks have already made an assessment of you based on the general information they have about you. That is why some of us get pre-approved applications in the mail. Before you respond, you would be wise to make a self-assessment that applies to you specifically. Here are some things to look at. Are you a responsible person in other areas of your life? Are you able to get up on time every day? Do you arrive at school or at work on time? Do you complete work or school assignments on time? If you are disciplined with these things, you probably also are in money matters.
This personal character inventory exercise was not to determine whether you can qualify for a card. It is for you to know for yourself whether it is safe for you to get one or not. You want to be successful. You do not want to fail. Most who get a credit card will be just fine, but a few will not. Credit card debt can have serious consequences. Some have even committed suicide because of overwhelming debt. You do not want to be in that category. A credit card should be a rewarding convenience for you, not a burden.
Are you Financially Responsible?
Here are some money related questions you might want to ask to see if you are ready. For example,
1. Do you have bills such as rent or utilities you need to pay every month? How is that going?
2. Have you ever overdrawn your checking account?
3. Do you have an emergency fund? Are you able to deal with a significant surprise expense like a car repair, a medical bill or if you lose your job?
4. Do you have a budget? Do you know what comes in and what goes out on a regular basis? Can you stick to it without deviating from it no matter what?
5. Have you made an impulse purchase recently? Do you always carry a shopping list when you go shopping?
If you have positive answers to these questions, you might be ready to be responsible for a credit card. If not, you might want to think twice before diving in. Remember, a credit card does not add one penny to the money you can spend. On the contrary, if you are not careful, it can quickly become a serious drain on your hard earned cash. Interest rates are high and so are fees. Avoid them at all cost.