When I first started working sales, I was surprised to learn I had to “qualify” my customers. To become qualified, they had to pass a credit check. If their credit was too low, I could not give them our company’s promotional (and free) package of equipment.
As a German, I never heard of credit so I went and checked out my credit score. This three digit number, I later learned, was not very good. While it still makes no sense to me why Americans willingly have some financial worthiness number attached to their name, it is significant to think about—especially when coming out of college.
So let’s begin with what credit is.
Throw all myths about credit scores out the window. For example, your score is absolutely independent of your age and other demographic factors. The Department of Consumer Affairs states the score is assembled by credit reporting companies, measuring the likeliness the consumer will pay their debt on time.
These numbers seem as random to me as they do to you. The point here is that companies have figured out some people are terrible at repaying loans and start defaulting. In order to cover their own butts, they burn poor payers as Easy A’s, financially speaking.
Next, let’s talk about why you want to build credit.
Sure, you might think you won’t buy a house any time soon, take out a business loan or buy a brand new car. However, you might one day. And when you do, and your credit has been touched less than a wallflower on prom night, then you will regret your blasé attitude. Building your credit is much like working out; if you want to see results, it will take a long process of incremental increases.
So how do you build credit?
The simple answer is debt. By taking out loans, making payments on things like cars and paying for purchases with credit cards, you can earn points on your credit score. One misconception I had was that paying all my utility and cellphone bills on time could build my credit. They do not. They only affect your score when you miss a payment, and then they only decrease your score. For you, that means never miss a payment on your student loans if you have them. In fact, try not to pay off your loan all at once if you can, since the monthly payment actually helps your score.
Additionally, try to pay for mid-sized purchases like electronics, travel plans and groceries with a credit card. But only do so if you have enough cash in your checking account to immediately pay off these purchases, since credit card interest is insanely high and there won’t be a government bailout if you go bankrupt.
Bottom line is, here in America credit scores are important if you want to properly chase that American dream with a house, car, etc. Make sure yours isn’t non-existent, though a transparent credit score is better than a really bad one. Watch your money and your bills, keep up with your payments and chase that age-old American dream.
