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Dec 15, 2021 12:48 PM EST

6 Reasons to Start Building Credit Early


6 Reasons to Start Building Credit Early

(Photo : Andrea Piacquadio from Pexels)

Whether you're in college or getting started in the workforce, it's never too early to begin building credit. It can be a complicated effort, and you may not have it on your mind at all. But your financial future depends on your economic reputation, so as your life progresses, good credit will be a boon to you. Here are six reasons to start early and tips on how you can prepare for your needs down the road.

1. Higher Likelihood of Loan/Credit Card Acceptance

Paying off credit cards and loans is one of the strongest ways to build credit and fortify your finances. Credit cards also give you the opportunity to access funds that you might need for emergencies or large purchases. 

Unfortunately, the only way to get approved for one is to have a good credit score in the first place. You can do that with a secured credit card. These cards are easier to qualify for because they are secured by a deposit you make as collateral. 

Issuers that see your responsible credit building will look upon you more favorably when you apply for loans and accounts. Credit builds slowly over time, so start early. Once you do begin to be accepted, your ability to build credit will accelerate as you make more payments. It will also be easier to do this on time as you have already been doing so for a while.

2. Smoother Approval Process for Large Purchases

Good credit will also make it easier for you to make large purchases earlier on in life. This is particularly true for necessary purchases that are normally financed due to their high costs, such as houses or cars. It can be difficult to get approval for either of these things if the bank doesn't trust you. The higher your credit score is, the more financial institutions can see the trustworthiness in your history.

The younger you are, the less likely you may be to own a house - but you can finance other purchases, too. Say that the computer you've been using since high school has been irredeemably broken. Since you've been building your credit for a long time, you won't necessarily have to pay upfront for one. Issuers will note your good habits, and it will be easier for you to finance a new machine. 

3. More Plentiful Employment Opportunities

Many companies, when looking for new hires, include different forms of background and credit checks in their job application processes. Frequently performed for positions that handle money or sensitive data, these checks help companies see how your habits mesh with their requirements. A deeper look into your history shows the hiring manager how dedicated you are to your financial responsibilities. Your credit score is one of the main indicators that you are trustworthy with such important data. 

A young person with noticeably good credit will inherently be seen by employers as a cut above the rest. Good credit shows employers your commitment to working towards a goal. It can ultimately be one reason you are chosen for a role over another candidate. A credit history can also show that you have been working for a while because you have the income to make payments. 

4. Longer Credit History

The foremost problem that affects the credit scores of young people is the short length of their credit history. A person's good score can often be moderately impacted or limited simply by the age of their accounts. By using credit wisely as early as possible, you're giving yourself ample time to build this history. Your score's dependence on this metric means that it will begin rising earlier in your adult life.

A credit history of seven years is generally considered to be a decent amount of time to develop good credit. As mentioned previously, getting an earlier start to credit-building means that any concerns about your age can begin to taper off sooner. If you start at 22, you'll hit your financial goal years later than if you started at 18. It makes a big difference to be able to get a home at 25 versus 29.

5. Better Credit Rates and Terms

The sooner you start to build a history of paying your debts on time, the better rates and terms you'll get from creditors. You'll pay less in interest when you pay in full each month, or at least pay on time or early. The minimum age to get a credit card is 18, but you can start younger with parental support. 

Children can be added as authorized users on their parents' cards as a way to build their credit. This is a great method if you're committed to paying bills on time or want to develop the habit. To put it simply, you can not build your credit without being punctual with your payments. Beginning young can help you learn how to do so quickly, which is a necessity in all parts of life. Healthy payment habits will change the way you look at money for good, and will help keep your credit strong.

6. An Introduction to the Concept of Budgeting

Even more important than your credit score is your ability to organize and allocate your money effectively. This comes naturally as you learn the importance of keeping up with financial responsibilities. Credit payments can seem intimidating, but it's essential that you pay them. This is the perfect time to begin thinking in budgetary terms to maintain your quality of life while paying punctually. 

Even if you're just putting aside those funds and loosely watching everything else, you'll be steps ahead from before. Prioritizing your funds is the main principle of budgeting in the first place, so you're already halfway there. With this experience, you'll find it much easier to budget on a deeper level as you get older. This is paramount for building savings over time for your emergency and retirement funds.

It may seem like a long way away, but adulthood approaches quickly - it'll do you well to be prepared. A strong credit background will give your reputation the push you need for any kind of loan or purchase. The earlier you begin building your credit, the earlier you can set yourself up for a comfortable future. While you may be young, if you start building credit now, you can have a bit more freedom later on.

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