A Teen’s Perspective: The Importance of Building Credit
Your credit score will make you or break you. It is a reflection of you. It is what defines the confidence others will have in you to repay debts or to succeed. Building credit is one of the most important financial necessities for taking out loans or making major purchases.
The quality of your credit score will affect whether or not I can buy a car when I get a job out of college, purchase a house when I am starting a family, or make any other important financial investments in my future. But having a good credit score is not only about future investments. College is actually one of the biggest investments I will have to make, and that is now. Luckily for me, I have parents with credit to help take out these incredibly large loans. Government loans and scholarships are also helpful.
In order to take out any loans, you have to have a good credit score. In fact, many students are in a huge predicament: prior to needing loans, so many students do not have the opportunity to build credit scores. We go through life without having to have good credit, and then suddenly, when we enter the real world, we need it.
When you have not built any credit, making large investments and taking out loans can be exponentially more difficult. College students are not thinking about this now because they are not in a position to make any large investments other than college itself. But credit score is important to build up all throughout college so that once you are out of college, you can take out loans or make payments in the real world without having any issues.
Many credit cards are difficult to acquire without having already established a solid credit, which is sort of a catch-22. That is why it is so important to take advantage of student credit card opportunities to help build up credit. I know I personally have, and have build up a very high credit score by doing so. I will be in good shape when I am ready to make investments in my future.
Unfortunately, not every college students is thinking about his or her financial future. Let’s face it, we are all just trying to figure out what the future will even remotely look like. But regardless of what the future will look like, it will always involve financial investment and a good credit score. I encourage you to start your high school-aged (perhaps around 16) kids out under your own accounts. Have a discussion with your child on what he or she can spend, how a credit card works and warning your child about saving. Do not give your child a credit card without delving into this important discussion and lesson. Your child cannot build credit from a card under your account, though, even if his or her name is on the card. Perhaps after you test the waters, your child can eventually open his or her own account and begin to build credit.
When you have bad credit, it is a reflection of you as an individual. It tells others that you are not trustworthy or responsible. That is not how you want to be viewed by anyone, especially potential investors and banks that could provide loans. Because individuals with poor credit scores are seen as more unreliable, it is much more difficult to get any sort of loan. No one will want to invest in you if they don’t believe they will get anything in return, or lose out on you. It is important for college students to learn responsibility and how to keep up their credit while they are still in school, prior to entering the so-called “real world.”
Just be sure to explain to your child that although using a credit card does not require money at the time of purchase, you should never make a purchase for which you do not already have the money. Using a credit card to make purchases one cannot afford makes it likely that those bills will go unpaid. Not only does that lead to additional fees, but it can also ruin one’s credit score.
Keeping track of purchases, saving receipts and remaining organized are also extremely important. When you receive a credit card bill, your math should add up. If it does not, there could be a charge somewhere that does not belong. If you do not check for these possible errors, you could potentially struggle to pay bills that you do not need to pay in the first place.
Keeping your credit card in a safe location and ensuring that no one has access to your credit card information is also vital. Fraud or theft can affect your credit score without you even knowing until it is too late. Although these issues can often be rectified, that does not change the fact that your credit score was lower and it does not change an investor’s impression of you. In addition, there is the chance that your credit score will not be 100 percent restored after fraud or theft. For this reason, it is also important to keep track of your credit score to look for any suspicious changes.
Your credit score is so important to maintain and keep track of. It is your key to making any future investments, whether that be starting your own business, purchasing a car, putting the down payment on the home of your dreams or, in the future, paying for your children to attend college. Be sure that this conversation comes up with your children and that you start to prepare them to be financially responsible.