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Finance 101

The Real World: Dollars and Sense - Credit

Posted on April 09, 2015 by Maddi Carr

If you thought plastic could only hurt the environment, think again.

You can’t see it, touch it, or feel it, but credit is always there. It’s peeking over your shoulder every time you put another new pair of Nikes on charge, or you forget about the utility bill that slipped behind the microwave.

Credit can be a blessing or a curse. The good news is, it’s up to you to choose between the two. Building credit is an essential part of becoming financially responsible. Your credit score is, or will be, key to your financial life.

It is important to remember, too, that credit is much more than just credit cards. In simple terms, a credit score represents your creditworthiness—your eligibility to borrow money/pay off debt—by evaluating your current and past financial history.

This does not include account balances in checking or saving, but highlights your history of bill paying (credit cards, utilities, etc.), loan payments, account history and experience. The credit bureau compiles this information, and assigns you a credit score that other financial institutions use to determine whether you are responsible enough to be accepted for loans, mortgages or credit cards.

Like Rome, a good credit score can’t be built overnight. It can, however, quickly go up in flames. Making late credit card payments after a month of impulse buying? Deduction.

Roommate forgot to pay the cable bill - that’s in your name? Deduction.

Scary stuff, right? Well, I can’t deny that credit can be intimidating. That’s not to say, however, that you can or should ignore it. Ignoring credit altogether won’t get you anywhere - after all, no credit isn’t much better than bad credit!

The only way to avoid the dark pits of credit doom is to take the high road. If you don’t have a credit card, it might be a good idea to look into getting one. Young adults often co-sign their first credit card, meaning that your parent or co-signer is a fallback for any debt on that credit card. If you feel ready to open a credit card and start building credit yourself, look for a low-limit credit card without an annual feel, like R.I.A.’s Visa Classic.

Remember to pay off your credit card bills in full each month, keep up to date on your utility bills (and your roommates), stay disciplined, and you’ll be climbing the credit ladder to high score credit heaven in no time.