There's no rule that says you have to establish credit as an adult. However, building and keeping a good credit rating serves to your advantage in the long run. If you're toying with the idea of applying for your first credit account, consider the benefits of establishing a credit history.
High Credit Score
Having no prior credit history when applying for financing can result in a credit rejection. No credit history is often as bad as having horrible credit from a lender's standpoint. Lenders need to review your credit history and score to determine how you manage debts and credit accounts, and without this information, they can't assess your creditworthiness. An established, good credit score helps you qualify for mortgage loans and vehicle loans.
Better Interest Rates
Some lenders do accept applications and offer financing to people with no credit history. However, to compensate for the lack of credit history, lenders charge higher finance fees or interest rates on loans. You can avoid the hassle of paying higher finance fees by establishing credit first, and maintaining a good credit score. Acquiring a credit card and then waiting about six months to apply for a mortgage loan can make a huge difference in the interest rate.
Co-signers for Loans
People without credit histories often have to rely on others to acquire financing. Co-signers include their name on loan agreements and are liable for the debt if the primary signer doesn't fulfill the contract. To qualify as a co-signer, the person chosen has to establish credit themselves, and they must maintain a good score to meet the lender's requirement. Rather than rely on someone else to get a mortgage loan or auto loan, establish a personal credit score and get financing on your own.
Ways to Establish Credit
Several methods can help you build credit and maintain a good score. Credit cards are one of the easiest ways to establish a credit score. You can apply for a secured credit card with your bank and pay the required security deposit, or you can submit an application for a department store charge card to begin building a credit history. To increase your score after acquiring credit, make payments on time each month and keep outstanding balances on credit cards to a minimum.
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