Almost everyone does. There are things available without using credit, such as rent, food, and other necessities which can be paid with a check, debit card, or cash. But building a solid credit profile is important even if you prefer to pay with cash. Learn why and how to get started building your credit.
Why do you need a good credit profile?
If there is no need for a mortgage or loan or a credit card, it follows; there is no need to establish a credit history, yes? No. Good credit is important when applying for a loan or a credit card, but it’s also used to make other important decisions, such as:
- Auto Purchase
- Property Rentals
- Job opportunities
A strong credit profile is important because it is how consumers are gauged as to credit worthiness. It also dictates the rate of interest that consumers are charged, so not having good credit can cost you a great deal of money.
Build good credit.
When you’re just starting to build your credit profile, lenders may look at a few things to help them decide if you are credit-worthy, including:
- Bank account history: Open a checking and savings account. Avoid overdrafts and bounced checks.
- Work and housing history: They’re checking to see whether you can hold a steady job, move frequently, and pay your rent on time.
- Utilities: Lenders are looking for utility accounts (gas, electric, phone, cable, Internet, water, cell phone) in your name. Make sure you pay all your bills on time and in full.
The next steps focus on getting credit and using it wisely:
- Get a retail or gas credit card. These are usually easier to qualify for. Only charge what you can afford and always pay your bill on time and in full to build the strongest credit history.
- Get a secured credit card. These cards are tied to the amount of money you have in your checking account or a special account the lender sets up. The money doesn’t come out of your bank account as it would with a debit card, but you cannot charge more than you have in the account.
- Apply for a small loan. Borrowing and paying back a small amount of money with a personal loan can be a stepping stone as you build your credit. Don’t borrow more than you can afford and be sure to make all your payments on time and in full. Compare loan interest rates, terms, and fees before deciding on a loan.
For a convenient list of secured credit cards and credit building loans, go here: