As we’ve discussed, adult human beings need credit—good credit—to do lots of important adult things such as renting apartments and buying cars. But having debt, whether it be in the form of a balance on a credit card or just Ye Olde Stvdint Loane, can be fucking terrifying.
Fear not, gentle readers. For there is a way to build up good, healthy credit while neither increasing your debt nor your risk.
So here’s what you do
You get yourself a credit card. Ideally, it’ll be one with a decent rewards program and low or nonexistent annual fees (more on that later). Then you set it up as the automatic billing account on a small monthly fee—Netflix or your electric bill, for example. You were going to pay this bill anyway on a monthly basis, so presumably it’s an amount you can afford to shell out every single month. Then you just pay it off, monthly and on time.
Yep. That’s it. That’s all you have to do.
Here’s why it works to build credit
Your credit score is based on a number of mysterious factors known only to Level 10 and above Financial Paladins. But one of these factors is whether or not you pay off money that is loaned to you on schedule. Creditors are asking, “Do you pay your bills by the due date?” And if the answer is yes, then that is a positive factor towards your credit.
So even if the amount is tiny, as long as you’re faithfully paying it back on time, that will build you some good credit.
Since you’re already paying a number of monthly fees like your electric bill, it can’t hurt to put one of those monthly fees on a credit card for the purposes of building good credit. You’re still going to deduct the same amount of money from your bank account every month. It’s just that now instead of paying it to the power company, you’re paying it to your credit card company.
Oh yeah. Another thing factored into your credit score? The length of your credit history. So drop what you’re doing and take care of this right the fuck now.
Walk before you run
If you’re new to the world of credit cards, it can be easy to let things get out of hand. Sure, you could use your credit card for all of your expenses and “just” pay it off in full every month. But what if you can’t pay it off in full? And what if that happens several months in a row? Very bad things, that’s what.
Remember that interest can work for the forces of darkness. If you lose control of your credit card spending, you could be racking up interest in enormous amounts. This’ll cost you twice. First, because you have to pay back that interest to the credit card company eventually whether you like it or not, and second because carrying a high balance on your credit card month to month actually hurts your credit, the very opposite of what you set out to do in the first place!
So start out with your credit building training wheels firmly attached and limit the amount of monthly expenses you put on your credit card to what you know you can definitely pay off by the due date. Once you level up (with “leveling up” defined as having a great credit score, a decent income, zero debt, and enough financial self control to keep your credit card spending in check), then you can move on to exciting tactics like using your credit card to build up airline rewards points or just using it as your basic emergency fund.
You are ready for great credit, you sparkling snowdrop of fiduciary excellence. And now you know how deliriously easy it can be to obtain.