Adulthood is often characterized by buying and owning a home, purchasing a car, starting a business, or creating a family. All these milestones are considered lifetime achievements, which can only be reached once an individual gains financial stability. It’s because most adult responsibilities come with a corresponding price to pay.
Think about it. If you were to own a house, car, or business, you would have to have enough money to finance your investments. The same thing applies to starting a family because you would need to make sure that your children will have access to necessities, which is part of your duty as a parent.
You might wonder how everyone around you has managed to reach all these milestones in life or even afford what they have, despite being in the same generation that you are in. The quick answer to this is because they have good credit, and that has opened many doors for them.
What Are Credit Scores, and Why Are They Important?
The term “credit” as in “credit card” is not jargon limited to the finance industry, yet it can still be difficult to understand without any background knowledge. In a nutshell, your credit is something that you can build over time by maintaining a good score—this is known as your credit score and history.
Building a good credit score is important because it’s how financial institutions, such as banks and lenders, gauge your creditworthiness or, to put it simply, your ability to pay your bills on time. This means that if you can maintain a good credit score, you can be eligible to apply for loans in the future.
All your past and current credit card transactions will reflect on your credit history, which will directly affect your overall score. Many young adults have been raised to associate credit cards with overwhelming debts, which is why they are less likely to start building their credit when they enter adulthood.
Unfortunately, since personal finance is not taught in school, young adults don’t learn that their credit score, or lack thereof, can affect their financial stability in the future. If you belong to the population of people who were raised to believe otherwise, here are three ways for you to start building your credit:
Step 1: Apply for a Credit Card
The first step you need to take before you can build your credit is to make an application. One of the best ways to narrow down your options when applying for a card is to compare the features that they come with. This can include the rewards rate, annual transaction fees, or interest.
For instance, you have decided to apply for a card at United Overseas Bank (UOB) because they are the leading bank in Southeast Asia. Thanks to modern technology, you no longer have to physically go to the bank to apply for a card. All you have to do is provide all the requirements when you send an application through their website.
Step 2: Maximize Your Credit Score
Once you have your credit card, the next step will be to maximize what it has to offer. By simply going through UOB’s website or subscribing to their mailing list, you will be able to receive all the UOB credit card deals that you can take advantage of. These can include exclusive dining deals, travel essentials, or even promos for online shopping.
Remember that your credit history is a summary of all your credit card transactions, which means that your score will be seen as a whole, not in parts. It can be easy to get carried away with spending when you’re using a card because the payment will come after, which is why it’s seen as a slippery slope.
If you keep spending irresponsibly in the name of maximizing your credit, it will only be a matter of time before you accumulate debt. So, while you’re still starting to build your credit, do practice responsible credit card usage to avoid future headaches.
Step 3: Pay Your Bills on Time
The easiest way to maintain good credit is by paying your dues on time. It might look simple enough, but this is where most credit cardholders start accumulating debt and lowering their scores. This is because they are tempted to spend more than they can afford, which means they will be forced to defer their payments or completely miss out on deadlines.
That’s why credit cards are called slippery slopes. It’s a vicious cycle that leads to debt because once the holders fall into the habit of missing their deadlines and getting high-interest fees, it can be difficult to get out unscathed. This will hurt their credit scores and borrowing eligibility in the future.
Keep in mind that with great power comes great responsibility. If you want to have financial freedom and stability during adulthood, then you have to put in the work to maintain your good credit score. Pay your bills on time and only spend within your means; that’s how you’re going to become financially stable.