If you're currently enrolled in college, you're probably already thinking about how life will change after you graduate. Being an independent adult requires making significant decisions on your own, and that can undoubtedly be stressful. However, if you create a plan with goals and take appropriate steps now, it will be more manageable than doing everything at once. One important decision you will need to consider sooner rather than later is how to establish credit. A strong credit score affects everything from your ability to make major purchases and obtain a loan to the actual interest rates for which you qualify. Fortunately, Our Money Matters has outlined eight easy tips you can follow to establish and manage your credit.
1. Establish credit
Many young adults avoid applying for a credit card because it's confusing to choose the right one and because it’s an extra responsibility they might not be ready to take on. However, it is a valuable tool for building credit because it helps establish a history and provides a record of your ability to manage payments.
2. Choose the Right Card
Before you apply for a card do your research because finding the right card can be confusing. Fortunately, the Our Money Matters platform has a comparison tool you can use to find the best options. Before deciding, you can compare rewards programs, interest rates, and yearly fees.
3. Stay within a Budget
It's human nature to want to indulge periodically but doing that with a credit card can get you into a lot of trouble. Not only will you pay interest if you carry a balance, but it can quickly add up to a point where you can't even make the minimum payments. So, set a budget for your card each month and use it for the necessities like groceries, etc.
4. Pay Bills on Time:
Late payments can significantly impact your credit score not to mention your wallet, so it's essential to pay all of your bills on time, every time. Set up automatic payments or reminders to ensure you don’t forget.
5. Keep Low Credit Card Balances:
High credit card balances relative to your credit limit can negatively impact your score. Pay off your card in full each month.
6. Limit the Number of Accounts:
Avoid frequently opening new credit accounts because every time you open a new one, it creates a hard inquiry on your credit report, which can temporarily lower your score.
7. Monitor Your Score Regularly:
Review your credit report monthly to ensure all the information is accurate and up-to-date. Dispute any errors with the credit bureau to have them corrected as soon as possible.
8. Pay Down Debt:
High debt levels beyond credit card debt can negatively impact your credit score. Focus on paying it down, especially high-interest debt, to improve your credit utilization ratio.
In conclusion, if you follow these tips, you can not only establish credit but begin to take control of your financial future.
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