Getting Started with Credit

I started working at Educators Credit Union as a high school co-op employee in 2018. During this time, I have learned what “adulting” really means and how choices you make early on can impact you for the rest of your life. This led me to think, when it comes to personal finance, how many teenagers are as lost as I was?

The transition from high school to adulthood is not a simple one. Once you graduate, there’s a world of opportunities and decisions to make that impact you financially. You could go to college, buy a new car or start saving for that new house, but no matter what you choose, establishing credit makes it possible.

The words “establishing credit” sound intimidating, but just mean that you have proof that you are willing and able to pay back borrowed money. Borrowing from financial institutions is inevitable for most of us, but it is important to be financially educated and responsible before you begin to establish credit.

Here are a few tips to ensure that you are making the best financial decisions when it comes to credit:

• Don’t buy what you can’t afford!

A credit card might seem like free money, but when your payment date comes around, it is important that you can afford to at least pay the minimum payment. If you really want to build your credit, pay off the entire statement balance, which is the amount of money you spent in a billing cycle. Paying your statement balance each month is also a good way to avoid interest!

• Credit is your friend, not the enemy!

Avoiding credit cards or loans may seem like a good option to stay out of debt; however, credit is the proof lenders need that you are a trustworthy person to loan money to. Opening a credit card with a low maximum balance and making payments each month is all it takes to begin building credit.

• Read the fine print!

You must be selective when it comes to a credit card. Credit cards with low/moderate APR (interest rate), no annual fees, and benefits are what you should take into consideration while credit card shopping. Some credit cards have important hidden details in the fine print, like an interest rate that will get higher after the first six months or year. It is important to be completely aware of what you are signing up for when credit card shopping.

• One step at a time!

After reading this, you might be extremely eager to open loans and start building your credit but applying for a lot of loans or credit cards at once can lower your credit score. The applications are “hard hits” on your credit and it can also give lenders the impression that you are having trouble getting approved for loans.

As I am entering the adult-world, it has become evident to me that credit is essential to achieving short-term and long-term goals. When used responsibly, establishing credit can open opportunities for you that may not have been possible otherwise. Please comment below what you learned about establishing credit!

-Hailey K.

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