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 is it established?
In the simplest terms, 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 paying it off in a timely manner, you are showing lenders that you are responsible with money and can be trusted to handle more money in the future. Once you have credit/debt, you are given a credit score,
which is essentially a report card for how you handle your money. Credit scores are often reviewed by vendors when you apply for a credit card, buy a car, rent an apartment, and sometimes by employers when you apply for a job. If you have no credit or a low credit score, you might want to build a credit history in college.
Here are a couple of easy ways to start building your credi:
- Get a secured credit card
- A secured credit 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. In this situation, you are the primary person responsible for making payments.
Some of these options require asking someone you trust for help. Money, specifically debt, can be a stressful topic to talk about. It's important that you are upfront and set clear expectations about how any shared account or card will be used. Discuss all of the "what if" scenarios and decide ahead of time how they will be handled. Doing this can save a relationship and reduce stress for both of you.
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