Having a good credit rating is essential for everyone today. It plays an important role in various aspects of your financial life including getting a credit card with bonuses, qualifying for the lowest interest rates on a personal loan, and even getting the job of your dreams.
Your credit score may influence multiple life decisions connected with personal finance so it’s essential to start building it as soon as possible. You may be new to this concept as not many young people were taught financial literacy at schools. Keep on reading to learn about the importance of building your credit at an early age.
When You Should Start Building Credit History
Many young people aren’t aware of the time when they should begin building their credit. They believe they will have enough time for it after they graduate and start their careers. However, the reality may be different. Once you graduate you will already need to have an established credit history if you want to land a decent job, get an unsecured credit card, or a personal loan.
Over 40 percent of college students don’t have enough knowledge about their credit history and its importance as they weren’t educated about this topic at all. Many teachers and parents don’t consider this topic important while about 25 percent of young people don’t even know how to check their rating. You should learn what is a bad credit score and how it can affect your credit history and further financial decisions before it’s too late. It’s good to start building your credit when you are 18 or even earlier.
Why You Should Establish Credit Earlier
So, is it really important to build your credit history at an early age? Yes, you need to think about your financial future in advance. While you are still young you have enough time to establish a solid credit and even make mistakes. You’ve got it right, many people make mistakes that lead to unpleasant consequences and the loss of several points in their credit rating.
You may miss some payments or be late with them once in a while. If your credit rating drops a bit, you will have to wait for about seven years until it gets back to normal. So, the earlier you start building it, the better it will be for you in the long run.
More than that, your credit history may affect your borrowing abilities. If you decide to obtain an unsecured lending solution you will certainly need to provide proof of your creditworthiness. This is your credit history. The lenders will conduct a credit inquiry to define whether you present risks or not. Credit card issuers also review the credit history of the client before they issue a secured or unsecured credit card.
If you want to get an unsecured credit card and apply for extra bonuses you will need to have decent credit. Borrowers with good or excellent credit can qualify for lower interest rates on a mortgage and even student loans. Besides, many employers review the credit of an application for potential red flags such as accounts in collections or delinquencies. So, your credit may even affect your ability to land your dream job.
Advantages of Building Credit
Despite the current pandemic and over 18 months of economic recession, the credit score of American consumers continues to rise. According to the recent Report from Experian, the average VantageScore in 2021 was 695 as opposed to 688 in 2020.
There are many benefits of having a good credit rating. Having a high rating and a good credit history is beneficial for many aspects of your life. Here are some of the main advantages:
Higher Approval Rates
If you decide to apply for a borrowing solution such as a loan or a credit card you will have more chances of being approved with good credit. Lending companies and traditional bank institutions are eager to deal with low-risk clients whose FICO score is above average. So, if your current rating is 550 you will have fewer chances of approval than someone with a 750 score. Hence, your credit rating as well as your employment status and monthly income are among the top factors that lenders take into account.
Lower Interest Rates
Another benefit of building your credit at an early age is that you will be able to qualify for lower rates. Even if you are still studying at a college or university the time will come when you will decide to opt for a personal loan, a car loan, or a mortgage. If you already have established credit, you will be a more favorable applicant and the lenders will approve your request with the lowest rates.
More Flexible Conditions
Good credit history and rating allow consumers to qualify for more flexible lending conditions and the best terms on different borrowing services. Again, when a lender views you as a low-risk client due to good credit, they will be eager to give you a higher credit limit on your credit card or issue a larger sum on a personal loan. Moreover, consumers with good credit may take advantage of longer and more flexible repayment periods.
Robust Benefits
This is what so many consumers long for. We all want to get a credit card with additional bonuses such as high rewards rates, annual credits on travel and dining, lounge access, etc. You may achieve these perks only with a good rating. You may find some benefits and rewards credit cards even for clients with fair credit but having excellent credit history will open even more doors and opportunities to you.
Bottom Line
Don’t hesitate to start building your credit history while you are still young. There are many benefits of having an established credit rating when you graduate and start a career. Begin with taking out a secured personal loan or a secured credit card. Making regular on-time payments will help you build decent credit in the short term.
It’s important to build good credit if you want to achieve your financial aims and avoid mistakes. This way, you will be able to avoid risky lending solutions and borrow money responsibly. Make sure you manage your credit wisely and pay your bills on time.