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Why Gen Z Should Start Building Credit Now

The below content is provided by our friends at Pocketnest, and does not reflect financial advice from Service Credit Union. Service CU’s Fin-Life app for financial wellness is powered by Pocketnest. Download it today on the App Store or Google Play! 

Building Credit

Your credit score is something that will stick with you for your entire adult life. So, even if you’re not currently worried about how it will affect you, your younger years are when it’s important to start building credit and sustaining a great credit score – rather than trying to repair what’s broken years later. Here are some easy ways to start today.

What is credit?

Credit is the ability to borrow money with the understanding and under the agreement that you will pay later. A credit score is a three-digit, numeric representation of an individual’s capacity to repay a loan. 

Buying on credit became popular during 1920s consumerism to allow average Americans the ability to finance higher-priced items like cars. These days, you probably think of credit more in terms of a credit card, and less in terms of having an account with a specific store.  

So why is having “good credit” such a big deal? 

Having good or even decent credit can help you big time in the long-term. For example, you can reap the benefits from the best credit cards, which may offer great point programs and other exclusive benefits.  

You can get also more easily get loans with more favorable terms, including auto loans, personal loans and mortgages. 

In the loan-approval process, those with bad credit scores are often denied, as they’re considered unstable and risky. However, a good credit score can make the loan application process seamless, as they trust that you’re “good for the money.” With better credit, you’re more likely to secure lower interest rates and better terms on loans, cards, and insurance. Why? It’s common for insurance companies to reward your responsibility with lower rates because you are deemed less of a financial risk.

How to start building credit early

There are many ways to go about building credit. The most obvious is to open your first credit card. However, if you are still financially dependent on your parents, you can explore the option of becoming an authorized user on their account, which is essentially another card for them, but in your own name. This will help your credit reputation—as long as your parents maintain good credit—and is easy to do while you’re still young. It’s beneficial to discuss how your parents manage their credit as insight into how you can continue their positive credit behaviors after you get your own card.  

If you are at the stage at which you are ready to open your own credit card, find a card where the terms are fitting for you and go for it! It’s time to build up a great credit history.

Credit mistakes to avoid

There are many mistakes that can harm your credit! Here’s how to prevent your score from dropping.

Make your payments on time

Having backed up or late payments even by a few days can initiate massive blows to your reputation. That’s why it’s crucial you’re sure that every purchase you make is well within your means. Just because it’s not immediately drawing from your checking account like a debit card, you’re still on the hook to make those payments! And having a poor payment history is the easiest way to hurt your credit score.  

Obviously, it’s best to pay off your credit card bills on time. If you find yourself in a tough spot, give your credit card company a call and see if they’re willing to work with you.

Keep your credit utilization rate low

A credit utilization rate (ratio) is a numeric expression of the amount you currently owe in terms of your credit limit. While you always want to meet your card’s minimum charge, it’s important to pay your outstanding balance in full to keep your ratio favorable.

Track your debt

Loans and previously opened accounts also factor into your credit score, so keep up with all of your repayments to ensure the best score. Additionally, mortgage foreclosures, bankruptcies, and car repossessions all pay into credit. 

Lucky for you, Fin-Life has a handy-dandy debt elimination plan builder right in the app. Check out the Debt theme for more.

Don’t apply for every credit card

No matter how eager you are, don’t get into a credit application frenzy. When credit card companies detect that you’ve been applying for more credit options than a 90s one-hit-wonder, especially in a short period of time, it sends the message that you’re financially unstable and not an ideal customer. 

Don’t beat yourself up if you can’t keep your credit perfect at all times: carrying some debt and incurring interest is inevitable at points. Start young, keep it up. And remember: you can always boost your credit score; no score is too high!  

Now pop into the Fin-Life app and take a peek at your debt elimination plan to make sure everything’s squared away! You got this!