Finding a happy medium: How to build credit

By Sydney Horton
Times-News correspondent 

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[Metro Creative Graphics

   Editor’s note: This is a continuation of Sydney Horton’s series, Adulting 101.
Credit can seem like a terrifying thing.
However, once you get a deeper understanding of what credit is and how it works, you learn that it isn’t so scary and having good credit helps you in the long run.
So, what is credit? Credit is essentially a record of your trustworthiness with borrowed money. If you gave someone $50 you’d trust them to give it back, correct? Imagine “you” as a bank and the “$50” is your approved credit limit.
Lenders (banks, etc.) expect you to return their money within an allotted time, if you don’t, you have to give it back with interest. Interest is like a fine for not returning money within the predetermined time limit. Seems fair, right?
How do you build it? — Start by applying for a credit card with your bank.
If you are approved for $500 for example, don’t spend more than half of your allotted amount. In this example half of your amount would be $250. Use it for small things like gas or food, or in case of emergencies. Never buy something on a credit card that you can’t pay back in three to six months.
Once you have a little credit established (accounts must open for more than a year without going to collections) you can apply for a card at your favorite store. It looks good to have a least two open accounts, it increases your credit with time and increases your chances of being approved after applying for a loan or mortgage.
So, you’ve gotten approved. What’s next? — Keep paying on it to avoid collections.
We all fall on hard times, if you struggle to make minimum payments, even paying $3 can help avoid that. Remember, paying something is far better than paying nothing.
However, paying more is better than paying less. Pay what you can until you get back on your feet. If your interest is too high on your credit card you can always call your card company and request that they lower it, in some cases it works, in others it doesn’t. It’s worth a shot.
What if I don’t get approved? — There are many ways to build credit. The most common way is through leasing. Leasing is similar to credit except it’s not usually directly reported to credit institutions.
How will this help build credit? Once you’ve finished paying the item off, you can have it sent to credit institutions and it will be added to your credit report. For example, if you want a PS4 you can apply for a lease and make payments, remember not to lapse with your payments because interest is usually very high with leasing. You do not want to end up paying more for an item than it’s worth.
What about student loans? — Student loans can leave you in debt and with bad credit. But if you properly manage your money and keep a strict budget you can avoid a lifetime of debt.
I know it doesn’t seem fun, and you can splurge on yourself every once in a while, but make sure you are making payments. You can avoid severe debt by using your tax refund checks from college to make significant payments toward your loan. Thus decreasing the amount you owe in the long run, and increasing your ability to refinance if you need to.
Collections — If you fall far behind on your bills and they end up going to collections, it’s not the end of the world. Yes, your credit will take a hit. But if you can manage it, make as many payments to collections as you can. The larger the better.
Things that go to collections are what’s known as derogatory marks. The quicker you get it out of collections the better. Once it’s out of collections it stays on your credit for two reporting cycles. After those two reporting cycles, if you still see it on your credit you can report errors.
Credit is like a house plant, do nothing and it weakens, eventually dying, over water it and it drowns. Another words credit is all about finding a happy medium and keeping up with your own spending and lending.

Sydney Horton is a student at Michigan State University and a Teens & 20s writer.

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