Does simply hearing the word “credit” cause you to shudder? While your fears of credit may make you want to avoid it completely, building a good credit score is essential to achieving big-ticket goals down the road. Here are some reasons why you may fear credit and how to get past it:
You saw your parents suffer through the Recession.
As the economy took a disastrous tumble during the Recession, you might have saw firsthand how your parents’ struggled with staying on top of their mortgage payments or lost massively with their investments. The last thing you want is to find yourself in the same predicament.
How to get past it: Changing your perception about credit is really the first step. “Building credit is very important,” says Inga Chira, a certified financial planner and Ph.D., assistant professor of finance. “Using credit responsibly now will give you access when you need the money in the future,” Chira explains. It’s important to know that having solid credit is very necessary to renting an apartment, taking out a car loan, or buying a home. If you don’t have much of a credit history, it may be harder for you to be approved for a loan or you might have to borrow at a higher interest rate.
You already have enough debt.
Maybe you have mounting student loans or you’ve already had bad experience with credit in the past that set you back. If you’re afraid of racking up more debt, who can blame you? Taking out a loan or signing up for a credit card just seems like a bad idea.
How to get past it:
Taking on credit doesn’t have to wreak financial havoc on your life. Try opening one credit card and using it sparingly, suggests Melanie Lockert of Dear Debt. “I think opening one card and using it for something like groceries and paying it in full each month can be helpful,” Lockert recommends. You can also set limits on your credit card or turn it off completely by using apps such as CO-OP’s CardNav (available to members of participating credit unions).
You don’t exactly know how credit works.
There’s no shame in admitting you aren’t sure you know how credit works. And besides, credit is a complex topic and it can be hard to wrap your head around everything right away. You might have questions about how credit works, or maybe on how to improve your score.
How to get past it:
There are plenty of great sites out there to help you learn how applying for a loan or how credit works. Putting in a bit of time and doing your due diligence with expand your knowledge on the topic in no time. If you prefer to learn from a human, there are plenty of people out there who are happy to help. You can visit your local credit union and talk to someone, who can answer any questions you may have.
While your fears about credit may be very much alive, getting past it so you can build a credit history and a solid credit score is essential to upping your consumer power. Remembering that “Credit is an opportunity, debt is a problem,” and knowing the difference between the two will increase your understanding of the role credit has in the big picture of your life. By taking small steps today, you’ll be well equipped to hit milestones in your life.