How to Build Credit and Why it is Important

Build Credit Slowly
Getting credit can be tough. It is hard to get credit if you don’t already have it, and if you already have it then you don’t normally need it. Young people and those who have never borrowed need to build credit over time so that they can qualify for larger loans when and if needed.

The Need to Build Credit
If you do not have a credit history, lenders do not know whether or not they should give you money. Without any credit history, they can’t tell if you are a responsible debt-payer or a bad risk (most banks love bad risk, but will charge you for it – big time). You need to build credit in order to prove your creditworthiness. Young adults who are just starting to learn about financial responsibilities need to build credit, and recent immigrants to the U.S. also find themselves without a credit history.

Ways to Build Credit
It is actually pretty easy to build credit. Try one of the following ideas:

Use a co-signer on your first few credit accounts. Lenders will consider the co-signer’s existing credit. The co-signer essentially vouches for you while you build credit. I do not really like this way. We all want to do it on our own, so this way stinks. If you can start slowly and on your own, then choose that way.
Use credit programs for modestly large purchases like furniture. For example, you may buy a television on the “$80/Month Payment Plan”. These programs can be easier to qualify for and they certainly help you build credit. I also hate this method. Why get ripped off? Why pay an arm and a leg for stuff just to build credit?
My preferred method is to ask your bank or credit union about a secured credit card. You can make a deposit to your account and have a credit limit in the amount of your deposit. The bank takes little risk and you build credit slowly. This is my recommended way to build credit. You are secure and the bank is secure.

Risks of Building Credit
Remember that credit can be a useful tool, but it can get you in trouble. After you build credit, you may be flooded with offers. Banks, credit card companies, and others will want to loan you money because they’ll know you’re a good borrower. Don’t take them up on every offer — only borrow money when it truly benefits you.

Who Needs to Build Credit?
Anybody without a history of using credit needs to build credit. You never know when the need for a loan will arise, and it is a lot easier to get a loan with a solid credit history.
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