Credit Introduction: Credit Cards Part 1
This blog post will go over my credit journey experience. I will answer the following questions throughout my blog: What is credit? What is the history of credit? Why is it important? What are different avenues that beginners can take to build credit?
"I almost ended up homeless."
Please be advised that I am not a financial consultant. Everything I discuss in this post or blog will always come from personal experience.
How I was Introduced to Credit
During my sophomore year of college, I almost ended up homeless. While in my first year of high school, I lived in on-campus housing. I planned to do that for my sophomore year as well, but then a very close friend confided in me and told me he needed more money to pay his deposit for on-campus housing before the deadline. At the time, giving him the money for the deposit would have been my last for the month, so I decided not to submit my application to increase our chances of making it work together. I did not know what I was getting myself into. It was only a short time after that I messed around and found out.Â
What is Credit and the History of it?
I like to describe credit as your reputation expressed in numeric form. Credit is said to have dated as far back as ancient civilization. People have always been in the business of lending and borrowing. People need to know that the first actual credit bureau surfaced in the United States around the 1800s; that's only 223 years ago. Before the essential reporting, lenders in the community would go around town asking other lenders about the prospective borrower's history or reputation. A simple conversation was equivalent to a credit check. Like in verbal exchange, where you can interject and give your account, you can dispute and argue against the reports. Disputing and cleaning your credit report is a different story we will get to at an additional time. Equipping yourself with the history of something is essentially the same as learning how to tame it.
Why is Credit Essential?
No matter how hard of a worker you may be, sometimes it is best to have institutions that can and will back you for some of your investments. Having credit on hand will assist you in overcoming specific obstacles when it comes to your goals and plans. Your credit can determine your lifestyle, literally. People with low credit suffer many consequences that could be more cost-efficient and convenient. Need a car but have low credit? Low credit could be a significant payment with bigger monthly payments and a high interest rate. Whereas if you had good credit, it would be the exact opposite. In some cases, you may even get denied the car. The same thing goes for a home, loan, etc. You want to maintain your reputation with people who can make your life easier in the long run. These high payments may not seem like an issue, but eventually, the lifestyle gets old, and the domino effect begins. Imagine you take a loan on a car and find out you have to pay about $500 monthly for just the car loan payment, but the lender requires that you get full coverage insurance for about the same price or a little bit less. That's about $800 to $1,000 a month with full coverage. With a minimum wage job, you make just enough to cover these payments and rent. You are one random emergency away from falling into the crack of the rat race. Your car breaks down, and the damages amount to about $1,000. Now, you have to cough up another $1,000 that you may not even be able to afford. You will have a few options: 1. negotiate with the car lenders to see if you can adjust your payment options and split them in two. 2. start a payment plan with the car repair company, which will charge you interest. 3. find something more affordable and accept your losses. There may have been other options that I did not list, but those are the ones that immediately bounced off my head. The point is 2/3 of those options can lead to debt debt debt which will only decrease your credit score more and cause you to rely on more obligations to get you out of situations. Before you know it, you are living to pay off debt.
Building credit
It's best to start taking your credit seriously as soon as possible to avoid the catastrophe I listed above. As I said earlier, I had to learn when I was 19 to keep from being a homeless college student. There are a couple of ways you can go about starting to build your credit:
1. Secured Credit Card
A secured credit card is where you can pay a down payment against your credit limit to build trust with the lender. For example, I want a credit card to build credit, and I need a credit history to show the lender that I am reliable and suitable for paying the money back. I can get approved by paying $200+ to the lender, and in return, I receive a credit card with the credit limit amount I paid to them. I paid $200, so my credit limit is $200. After about six months to a year of showing that I am responsible, the lender will return my $200, and I will be able to increase my credit limit on their dime.
Link: Secured Credit Card
2. Unsecured Credit Card
An unsecured credit card is where the lender provides you with a credit limit without you taking on any financial liability upfront. This means they are trusting you with their money! Trust means friend, and it's always good to have friends to rely on when it comes to goals and how you can get closer to obtaining them financially.
Link: Cash Back Credit Card
3. Becoming an Authorized User
Some parents make responsible financial decisions, and their credit is good. Let's say they have this excellent credit and want to pass it down to their children. They can then add their child to their credit account as an authorized user. This allows the child to reap all the benefits of getting an increased credit score while their parents take the liability of paying the bills. Through this, the child will have a high credit score by being added as an authorized user. This is a great way to get ahead.
Conclusion
There are a few other avenues that you can take to build your credit. It is up to you to research and determine the best route you can take for yourself. Please participate in our survey or post suggestions to fellow community members on your strategy for building credit. You could save a life or someone the experience of going through a horrible experience. If you continue to read part 2, I will review strategies for mastering credit through credit cards and the do's and don'ts.
Participate by Spreading Knowledge
To participate and challenge yourself after reading this blog, you can post any of the following:
Ask questions you have about credit.
Share your credit journey.
Share some ways that you can build credit that are not listed here.
Share what you think of this blog and what you learned.
Apply for a Credit Card: https://refer.discover.com/s/4evceh
Thank you!
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