Remember when your parents told you not to rush to grow up? This advice usually came from their own experience with having to find a job, keep it, buy a house, pay bills, maybe buy a car, and save for retirement. Whether you took their advice and took your time or rushed out after your 18th birthday, there was probably a time or two where the reality of being an adult hit you in the face with a big, empty wallet. Unless you were fortunate to land an extremely high-paying job right away or had saved up enough while living with your parents, chances are that the need to apply for credit came into play.
Mortgages, car loans, cell phone contracts, and lines of credit all have one thing in common – a credit check. Not having a credit rating can hurt your chances of getting a house or car just as much as a bad credit rating could. On the advice of many banks and public opinion, it’s standard to apply for a credit card to build up some credit. I’m not saying that this is a bad way to go about building a credit rating; it’s just a very dangerous way to go about it.
Once you get approved for that credit card, you need to use it to start establishing credit.
A $500 limit is pretty enticing and can be reached extremely quickly. Will you have enough money to pay it all back after one month? If not, tack-on 18% or more in interest to the balance and it becomes even more difficult to pay back. All of a sudden all that can be repaid is the interest charge and the balance never goes away. If you happen to miss a payment, all your intentions of building up a credit rating go by the wayside and you might even be perceived as a credit risk.
Luckily, there are some alternative ways to build up a credit rating.
- Become familiar with two major credit reporting companies. They are Equifax and TransUnion. All activity that occurs when a person opens an account with a bank or other type of lending institution is reported back to these two companies. Once you begin to establish credit you will be able to access your credit score from these agencies. It will be a three-digit number. The higher the number the less of a credit risk you will be perceived as.
- Open a bank account. Just a basic chequing account will do, at first. Within this account set up automatic bill payments and write cheques that will not bounce. Later on, it will make it easier to apply for a mortgage or car loan from that bank as you will have established trust.Invest a portion of your paycheque each payday. $25 per cheque is enough to start putting into a GIC or RRSP. This is a very responsible approach to saving money. Starting to save early on is a huge benefit not only for looking responsible to potential lenders, but also when it comes to income tax time. RRSPs can result in you having to pay less or get more money back.
- Consider a co-signer. Sometimes waiting to build up a credit history is simply not an option. If you are lucky enough to know someone with an impeccable credit rating who trusts you to be responsible enough to make all your payments in time, that person can help. If the lender agrees to a co-signed loan, keep in mind that it will show up on that person’s credit report as well. If you aren’t extremely careful you could end up ruining your credit as well as your co-signers credit. Suffice it to say, holidays and social gatherings could be more than a little awkward if you were to ruin a family member’s credit.
You might wonder why a payday loan company is encouraging the use of a bank and discouraging the use of credit cards. Кaiseyourbanners.org is dedicated to making sure customers use their payday loans responsibly. A payday loan is a small amount, meant for short-term use in an emergency situation. Credit cards are typically advertised to be around for the same reasons. However, a payday loan from a responsible lender must be repaid on the repayment date. With no temptation to put it off, no extra interest is accumulated. Yes, there is a cost associated with using the service, but each time you make a purchase, the option to use your payday loan to pay for it is not in your face.