Using credit cards is a little like flying a plane: pretty awesome if you know what you’re doing, disastrous if you don’t. Unfortunately, many millennials don’t get to see all the benefits of having good credit, either because they are afraid of credit cards (63% don’t have one) or they mismanage the ones they do have. And yet, having good credit has never been more important; poor credit can hurt your ability to get a loan or a job. Because there are so many things that go into building strong credit, here are 6 tips for get you started.
1) Choose rewards that best suit you Credit cards come with rewards to incentivize you into using them. The most common credit card rewards are cash back on general purchases, hotel and airfare points, and cash back on gas. When looking at a credit card’s rewards program ask yourself two questions: “Which reward is most valuable?” and “Which makes the most sense for me based on my lifestyle?” Discounted airfare may have the potential to save you more money, but if you rarely travel you won’t be able to take advantage of those savings.
2) Always pay your bills on time Next to having a long credit history, making timely monthly payments on your credit card is probably the most important key to building strong credit. This can be undoubtedly tricky for millennials when you take into account other financial obligations like student loan debt. That’s why it’s critical you budget and plan correctly before you buy a round for everyone at the bar. Speaking of debt…
3) Consider consolidating your debt For people who’ve fallen into credit card debt, a common solution is consolidating--or refinancing--their old debts into new loans with more favorable interest rates. This helps you save money by rolling all of your debts, which you’ve probably incurred over a long period with different accounts, into a manageable one that can have a lower interest rate and scheduled repayment period. Be sure to search and compare loan rates from multiple providers to find the best deal.
The faster you can get out of any debt, the better your credit will look.
4) Know when to close a card Part of building strong credit means constantly taking stock of your situation. What made sense for you 5 years ago may not still apply today. Have your fees gone up? Do you no longer get the most out of your reward? Or have you just found several better options? These are all reasons to consider closing a card. However, be sure before you do it. Closing a credit card could hurt your credit score by nature of lowering your credit utilization ratio (the amount of all your available credit that you’ve used), and the amount of credit available to you.
5) Don’t get bogged down by fees Credit card fees are as sure a thing as death and taxes. These could be for anything from late payments, to exceeding your credit limit, to Credit card companies may surprise you with their ability to come up with creative fees, but some have more than others.
6) Up your credit limit A great way to build up your credit is by increasing your credit limit--or the maximum amount you can spend on a credit card. An increase shows that you already have decent enough credit in the first place, and it also lowers your credit utilization so long as you don’t take this as a sign to spend beyond your means. Building credit doesn’t have to be a scary thing that will hurt your financial situation. In fact, as long as you’re responsible with your money it could actually hurt you not to start building credit now.
Disclaimer: The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the suitability of any Even Financial product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional. Any information or statistical data sourced by Even Financial through hyperlinks, from third-party websites, are provided for informational purposes only. While Even Financial finds these sources to be accurate, it does not endorse or guarantee any third-party content.
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