You might not realize it now, but having a pristine credit score is one of the most important steps you will take towards financial security.

I’ve often heard people proudly boast that they don’t have a credit card, and have never had a credit card, saying things such as, “I’ve never had a credit card and never will! My dad always said if you have to charge it, you can’t afford it!”

While there is indeed truth to the idea that you shouldn’t splurge & leverage your credit to purchase items you could otherwise not afford, the idea that not having a credit card is a good idea couldn’t be further from the truth.

Get a credit card. Be responsible with it.

Why Do I Need A Credit Card Now?

Having 1 or 2 credit cards, and getting them as early in adulthood as possible, is essential for building your credit. Here are just a few reasons why:

  1. Time Matters. The length of your credit history directly impacts the amount of credit you can obtain. When you open your first credit card, chances are you’ll receive a small line of credit (Probably around $1,000). Think of it as the creditor giving you a chance to prove that you’re a responsible borrower.
  2. Total Credit Matters. The amount of credit you have also impacts your credit score. The reason is that the % of your credit line used at any given time also affects your credit score. Ideally, you’re keeping your credit balance low at all times (Ideally under 10%). In other words, if your total credit is only $1,000, and you max out your credit card, it’s going to depress your credit score until you’ve paid down the balance. The more credit you’ve been granted by lenders, the more credit you can utilize without an adverse effect on your score.
  3. You Will Eventually Want To Make A Large Purchase. If you ever want to take out a loan to own a home, finance a car, or start a business, banks will look at your credit score to determine the interest rate on your loan (or if they’re willing to lend you money, at all). It can be a difference of thousands of dollars per year in interest on a home, your ability to get a vehicle, being approved for a lease, or successfully execute on a business idea. Don’t forget – it’s not about what you want today, it’s about laying the groundwork for the future, recognizing that you will grow and change as time goes by, and you want as many doors open to you as possible.
  4. Practice Makes Perfect. Learning financial responsibility takes time. Forming good habits & learning the ropes before you have a fulltime job will ensure that you can focus on success when the time comes, instead of being limited or at risk of poor decision making when it counts. Think of it as practice.

With that said, as with most important privileges, abuse of a credit card can financially ruin you. However, that’s the case with most things in adult life. If you own a Ferrari and drive it recklessly, you can put yourself and others at risk – is that a reason to never own one? Or is it a reason to to be a responsible adult with discipline & self-control? I think we know the answer.

How To Choose A Credit Card

The next step is to get a credit card (It typically takes 5 minutes to apply & receive approval. Occasionally, there is a short waiting period). Once you accept your card, use it to make small purchases that you typically make anyway, and make a promise to yourself that you will pay it off each month. I recommend setting up automatic payments.

For a beginner, it’s kind of difficult to go wrong with one of the big credit card companies, such as Visa or MasterCard. My first credit card was actually an Amazon Card, then after 6 months or so I graduated to the Discover It Card (getting some cash back was always nice… and I typically ended up using the payout to reward myself on Amazon lol).

Click Here to learn about options for first-time credit card applicants.

How Is Credit Score Determined?

We touched on this a bit in “Reasons To Get A Credit Card Early,” but here is a more focused list of factors that affect your credit. I’ve heard many incorrect claims over the years, so I advise you to read this to dispel any potentially harmful & incorrect advice you may have received previously. 

Factors that affect your credit:

  • Length Of Credit History. The longer you’ve had credit, the more data there is for credit bureaus to make confident assessments of your reliability. This is factor is the primary reason to get a credit card sooner than later, as you cannot expedite the length of your credit history.
  • Percent Of Revolving Credit Utilized. If you have a credit card with a $1,000 limit, and it’s always maxed out, your credit score will remain suppressed. The good news is that your credit will improve on the next statement date after you pay down the balance.
  • Late Payments. I cannot emphasize this enough: DO NOT MISS A PAYMENT. Aside from going on a spending spree, this is the most common mistake beginners make. Many, because they don’t realize that even a single missed payment can chop 50-100 points off your credit score. Just set up automatic payments to easily avoid this pitfall.
  • Credit Inquiries. Each time you apply for credit, it’s recorded and reflected in your credit report. If you apply for credit too often, banks can take this as a signal that you are living above your means.
  • Types Of Credit Utilized. Credit diversity can help your score, too. This won’t be quite as relevant when you open your first credit card, but as time passes and you accrue a car loan and eventually a mortgage, having a responsible history across multiple credit types will have a positive effect on your credit.

So, now that you understand the basic applications of and factors that affect credit, go get yourself a credit card. Use it wisely and begin laying the foundation to easily receive loans with good interest rates.

Next, we’re going to talk about side hustles (that have the potential to become your main hustle).