Fact: The only way to establish credit is to start buying on credit!
You are a portfolio/ resume/ account which these companies hold on file.
Your CREDIT SCORE is your “grade” that determines how risky you are to lend to. If you’re too risky, meaning don’t have a good resume, or you don’t have a good “credit resume”, then your interest rates on the money you borrow will increase! YOUR CREDIT IS YOUR INTERVIEW.
Reasons why is credit important: If you don’t have cash, then you’ll need to borrow money in order to make a purchase! If your credit is FLAWED, you will pay more in interest and potentially have higher payments for the same thing someone else buys who has GOOD credit. You’re going to spend the money anyways, why don’t you take advantage of the benefits?
3 Companies evaluate your credit score
Ways to Build Credit:
-Opening a checking or savings account (Parents opening one up for their kids in their name!)
-Parents can open up a “mutual credit card” with their child’s name
-Car loans (Used or new)
-Line of credit
-Keeping a job
-Pay your bills on time (ie Electricity bill)
-Renting an apartment
Good Debt VS Bad Debt
Home Mortgage vs Outstanding Credit Card
Reason Why: They are both good because you are using someone else’s money in order to show the credit companies you can repay back your debt.
The home mortgage: something tangible that increases in value (they are not making any more land), paying down principle towards your home.
Store credit card: could set you back years due to the high interest rates if goes unpaid. DO NOT KEEP A RUNNING CREDIT OUTSTANDING!
Quotes: “If you don’t have cash, then you can’t afford it” Roger Pencek
“The poor long for riches, the rich long for wisdom, but the wise long for tranquility” Milkman
“The poor long for riches, the rich long for heaven, but the wise long for tranquility” Unknown
Reasons why credit cards are good:
-If you’re going to spend the money anyways, why don’t you take advantage of the benefits associated with a card of your choosing?
-Builds credit so you can make purchases later on that you may not have enough cash to purchase.
Selecting a Card:
-Check for annual cost to hold the card (Educate yourself on the benefits of the card and if this annual cost is worth it to you)
-Many banks offer student credit cards at no expense each year
-Point System: choose one that you’ll use and benefit from the points. (i.e. having an airline credit card American Airlines/Southwest/Delta) or if you travel a lot and stay at hotels. (i.e. a Marriott credit card because you get 5x the points) You’re going to stay there anyways and pay for it, why don’t you take advantage of the points. BINGO
-Perks of the Card (ie American Express Platinum- you receive $200 a year for expenses on an airline of your choosing. Includes baggage or alcoholic beverages)
Know Your Limit:
-Treat the credit card like it’s a debit card!!!!!!
Pay Your Bill Every Month:
-Some people say to carry a balance of some sort. They are experts!
-At minimum make sure you PAY YOUR MINIMUM, but know that interest will KILL YOU!
-Annual Percentage Rate (APR) is what interest you will pay on the outstanding balance. (ie 16-22%) (They must inform you within 45 days if they are going to change the APR, usually this is printed on the bottom of your bill THAT YOU DO NOT REVIEW!!!!!!!!!!!)
How to Get A Credit Card:
-Minimum 18 years’ old
-Employed or student
-Have a checking or savings account
-Walk into a bank and apply
-Google any credit card company and research which credit card company fits you, and apply
-Research Visa/American Express/ Discover/MasterCard
-Referrals from friends (Typically they will also get points for referring you)
Key Take Aways:
-Don’t run up 30-50% of the cards limit and leave balance outstanding.
-Pay on time! 30 days late, there may be a note on your credit report!
-REMEMBER COMPOUND INTEREST!
-Check your statement for incorrect billing.
-Interest is higher on your credit card than your checking/savings account, SO WHY CARRY A BALANCE!
Technic: If you don’t have cash you can’t afford it, but if you’re going to spend the money anyways, GET THE POINTS for it!