Each week, we are sharing a financial wellness tip to help you make the connection between financial management decisions, your overall wellness, and student success. Money touches every aspect of our lives, and a lack of financial literacy can cause unnecessary stress and negatively impact one’s mental and physical health.
Credit: What is it and how do you build it?
Credit is the amount of money you can borrow. Once you borrow money it becomes your debt.
So why would you want to build credit? By taking on debt and then paying it off in a timely manner, you are showing lenders that you are responsible with money and can be trusted to handle more. Once you have credit/debt, you are then given a credit score, which is essentially a report card for how you handle your money. Credit scores are then often used by vendors when you apply for a credit card, try to buy a car, or even rent an apartment. If you have no credit or a low credit score, it might be helpful to start building your credit history now.
Here are some ways to build your credit score:
- Get a secured credit card. A secured card requires you to make a cash deposit when you open the account. The amount of your deposit is often then the limit on your card. If you don't pay your bill, the issuer can take the money from your deposit. But by paying it off on time, you are building credit until you eventually become eligible for a regular credit card.
- Become an authorized user. This requires that a family member is willing to add you to their credit card. The payments they make are also recorded in your credit file so it is important to pick someone who has a long history of making payments on time.
- Use a co-signer. You can get a loan or unsecured credit card if someone is willing to co-sign for you.
Some of these options require asking someone you trust for help. Money, specifically debt, can be a stressful topic to talk about, so it is important that you both be upfront and set clear expectations about how any shared account or card will be used. Discuss all the "what if" scenarios and decide ahead of time how they will be handled. Doing this can save a relationship and reduce stress for you both.
