Having credit is key when it comes to renting an apartment, buying a house, purchasing a car, and much more. Aside from having credit built up, having a good credit score is extremely beneficial because those with good credit will generally have lower interest rates.

If you’re unfamiliar with what interest rates are, simply put, it’s the amount charged on top of the principal by a lender to a borrower for the use of assets, as stated by Investopedia.

So, if you have no credit, where exactly do you begin? How do you keep a good credit score and avoid getting into debt?

 Spinnaker got in touch with Roy Heymann, UNF Financial Planning Program Director and Certified Financial Planner (CFP), to get some answers and advice.

Heymann said that the best way to start building credit is to get on the radar with the “Big 3” credit reporting agencies: TransUnion, Equifax, and Experian. Together, these agencies provide potential lenders extensive data on your use of credit.

Building credit doesn’t have to be difficult unless you make it that way. “The more responsible you are with money, the better your credit score, and the lower your borrowing costs,” Heymann explained. 

If you’re in the beginning process of building credit, you don’t have to jump right into getting a credit card. Monthly payments such as your phone bill and/or utility bills show up on your credit report. Heymann heavily emphasized that paying your bills on time is crucial to getting and keeping a good credit score.

If you’re looking to accelerate the credit building process, applying and using a credit card is the best route to take according to Heymann. He also suggested using the credit card on expenses that you’d normally pay cash for, but you must ensure that you pay your credit card bill off every month.

“Start small, and don’t fall into the credit card debt trap.  Work with your bank or credit union to obtain a low-limit card with a maximum credit limit of $500. Be careful when applying – and read the fine print on the application,” Heymann said.

Now, you might be thinking, what happens if I miss a payment? Will my credit score plummet or my interest rate go up?

Well, it depends. Heymann stated that most lenders have grace periods, so if you miss a payment, you just need to do it as soon as possible. If you miss a credit card payment though, they’ll happily continue to charge you interest, on top of a penalty for the missed payment. If you miss it a second time, whether it’s loan payment or credit card payment, then you’ll likely have a problem. If you continue to miss these payments, Heymann said you’ll definitely see rate increases, credit rating declines, and you’ll begin getting phone calls from debt collection agencies. 

When it comes to your first big purchase – whether it’s a car, house, etc. – you may be required to have a co-signer. A co-signer is someone who vows to pay back the loan if you do not. One example of a co-signer would be your parents. If you do have a co-signer, this still helps build your credit and it also impacts the co-signer’s credit score. Heymann noted that it’s important to remember when it comes to purchasing a house and if you’re required to have a co-signer, this could be a 30-year relationship with the other signer.

In order to keep a good credit score, make sure you’re making your payments on time. It’s also important to protect your credit ID. Identity theft can destroy your credit rating and can sometimes take weeks or even months to resolve.

“I’d consider locking down your credit information with the Big 3 – you can go to each of their websites and request a freeze so that no one can open a line of credit in your name without you first releasing the freeze,” Heymann said.

 When it comes to checking your credit score, you don’t want to be checking it constantly, but you can check it more often than you might think.

Heymann explained that The Federal Trade Commission and The Consumer Financial Protection Bureau have agreements with the Big 3 to provide every American with one free credit report every year from each of the reporting agencies. This means you’re able to pull a credit report every four months to monitor for any unusual activity – catch outstanding claims, correct any errors, and take responsibility for your future. To view your credit score, visit Annual Credit Report.

 Other services such as Credit Karma and Mint report your credit score and assist you with managing credit and debt. However, Heymann indicated that these are both “for-profit” operations so, in exchange for data, they’ll either offer subscription-based or ad-supported software, tempting you to sign up for more credit cards.

Lastly, Heymann said, “Always remember – there’s no such thing as a free lunch! Before you fall into the debt trap – remember that the credit card interest being racked up by other people is paying for many of the big shiny buildings that you see downtown – and the lunches that are being eaten in them! Don’t be one of them.”

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