Credit Part 2: How to build credit

Hey Heyy. In my last post I discussed credit in terms of what it is and the importance of working on your credit. In this post, I’m excited to give you some practical steps on how to start building credit, especially those who don’t have credit just yet.

In our community as millennials, there’s a lot of misconceptions about credit. So much so, that some people have a fear of credit and straight up think credit cards (not the same as credit) are the devil.

First things first : “No credit” isn’t the same as “bad credit”. Having no credit means that you have not built up a significant credit history due to having no interaction with credit, which is pretty normal for people our age. Having no credit history can result in a low credit score or you simply won't have a credit score, because well, you have no credit history. This is okay, you gotta start somewhere, right?

Having bad credit, on the other hand, means that you have a history of making poor choices when it comes to paying your bills. Yup. I went there . Both these situations can result in a low credit score, and both will take time to address.

Okay, so I’m guessing your'e ready for the tips now!!

First of all, if you don’t have credit, just know that any account you open will need to stay open for at least six months in order for you to have a credit score (the credit reporting agencies need six months to monitor and report your activity).

Sooo step 1:

Open some accounts in order to start building a credit history that will later translate into a dope credit score. And now your'e thinking "wait didn't say this will be harder because I have no/ poor credit?" Yes. As I mentioned before , with having a low credit score, many companies aren’t dying to lend you money. SOOO, how do you get around this??

There are a few options:

1. A secured credit card

The easiest way for me to explain this is kinda like you're securing the card with your own money, because lenders have trust issues in the beginning of your credit journey. You need to prove that you can manage borrowing money, by first borrowing it from yourself. How this works is by making a deposit (which will be your credit limit on the secured card). Lets say you deposit $500, your credit limit is now $500. The card is secured by what you have in the bank, meaning that if for whatever reason, you’re unable to pay, the lender will simply pay back with the $500 you deposited. In this way, they have taken no L's and you just played ya own self. They snatch all your coins up, because the card was secured with your own money in the first place. No L’s on their ends. If this happens, it does nothing to build your credit score.

However, on the other hand, if you played ya cards right, it's a whole different ball game. Let's say you're already a financial pro and you decide to stay below 30% of your $500 credit limit. IN doing so, you are developing good financial habits and and showing that you can be responsible with credit. Staying below 30% means you only use about $150 which is way easier to pay off than $500 if something goes wrong. You make your payments on time, and in full, and your'e on your way to the #700 club. Now, you can graduate to an un- secured card. An unsecured credit card is basically a regular credit card where you're borrowing from the bank, with no deposit required. Missing payments or being late will hurt your credit score, cause late fees and might spike up your already high interest rate (because your'e a noob so you won't get the lowest interest rates from jump).

2. Become an authorized user

Lots of times we don’t have credit cause we’ve never used it, or it simply didn’t seem important. But now you’re starting to wonder about getting a car, moving out or whatever other adulty things you wanna do. Time to hit up mom, dad or auntie and piggy back off their credit. Mostly, you’re just benefiting from their good spending habits, with less responsibility. You get a card in your name, under their account and they pay the bill. Before you get all excited and think this is free

money, it’s not. You’re expected to pay the account holder what you spend with your card. This is a good way to build trust, your credit and to ruin families , all depending on how you wanna go about it. Many people aren’t too excited to allow someone else into their account, because of the risk involved if you were to not pay your portion. Because of this, tis option is not suited for everyone. If you were to neglect your responsibility of paying your portion, the primary account holder could simply remove your from their account and their life, depending on the situation.

With that being said, you are now ready to graduate to some good credit building habits that I will get into with my next post. Before we move on, I challenge you to think about which of these options is best for you and start developing a plan for building credit and joining the #700club .

Next, we're gonna discuss factors that affect credit and how to start body building in terms of your credit score. 'Til next time,

Peace and Blessings,

Shaday