As I go through the process of shopping for my first home, the importance of a good credit score is on the forefront of my mind. I got my first credit card when I was 18 years old. Don’t worry, I didn’t use it to book a flight for spring break or some other activity that a college student lives to regret.
I was terrified to own a credit card because no one I knew personally had one. The only thing that I had heard about credit were the stories my Nigerian parents told me about the financial ruin that descended upon distant relatives who subjected themselves to the clutches of debt. Nonetheless, I wanted to face my fears and see if I could master the art of successfully managing debt.
Before I applied for the card, I had a conversation with my older sister, the most responsible person I knew, to get her opinion on whether or not getting a credit card at the age of 18 was a stupid idea. She did not have a credit card of her own, but she advised me on what she would do if she had one. She said that no matter at what age I got a credit card, I should be okay if I followed the practices that I’m about to discuss. Following the tips that she gave me was one of the best decisions that I ever made. The tips, now modified by my own experiences, are as follows:
Charge small recurring purchases each month
For example, I would use my card to put gas in my car. It got me in the habit of using the card for things that I actually needed and also using it for purchases that I could afford to pay back. That brings me to the next practice - charge only what you can afford to pay back in full by the end of the month. In my opinion, your true credit card limit is the amount that you have in your bank account as opposed to the credit limit that a company gives you. If you can make a habit of never charging more money than you actually have in your bank account, it greatly decreases the risk of maxing out your credit card or being highly leveraged on debt.
Contrary to popular belief, you do not have to charge large purchases on your credit card in order to obtain a good credit score. What is more important is a history of paying your debts consistently and in a timely manner regardless of the dollar amount owed. I charged less than $100 on my credit card each month during all four years of college. By the time I got to the end of my senior year of college, my score was in the Very Good FICO score range (i.e., between 740 to 799).
Guard your credit score with your life, and do not cosign a loan for anyone. By cosigning a loan, you are essentially telling the lender (and the borrower) that if the borrower decides not to pay back the debt, you are both willing and able to pay whatever they don’t pay in full. If that statement is true, then feel free to sign away. If that statement is false, offer the borrower your prayers instead.
Don’t let high Annual Percentage Rates (APRs), scare you if you are just beginning to establish a credit history. It is rare that any bank will give an individual with no credit history a low APR because the individual has no history to prove that they're a good credit risk.
Essentially, a high APR is to be expected when you’re just starting out. However, a good way to look at it is this - if you pay your credit card in full each month, the real APR is 0% because you won’t have a running balance for the bank to charge interest on. Also, as your credit score increases, you will be offered better interest rates in the future.
By following the above principles, I was able to build a good credit history without becoming consumed by debt. Fast forward to today, several years later, those good habits made getting approved for a mortgage a smooth, instant and seamless process. If you are new to or afraid of owning a credit card, consider the tips above, and watch your credit score soar.
Zikora is a Certified Public Accountant (CPA) by day. When not assisting and advising clients, she can be found writing, singing, songwriting, exercising, cooking, and or plotting her next move. She is a sounding board for friends and family and enjoys showing people that they can do things that they believe to be difficult or impossible.