Know what can help and what can hurt
Not all debt is created equal. Some debt, like student loans or home mortgages, is necessary and ultimately makes your life better. Other debt, like credit cards, can add up to serious trouble before you know it. When you understand the difference between good debt and bad debt, you avoid unnecessary debt right from the start.
What debt does for you
As soon as you take on some form of debt, you start building a credit history. This history is summed up in your credit report, a number that lenders use to determine how likely you are to make your payments on time.
Your credit score is a crucial part of your financial profile, and it can follow you for years. It can affect your ability to get an apartment, a car loan, a mortgage—even a job. So, when you're first starting out, your priority should be to create—and maintain—a good credit history.
Credit card guidelines
First, get a credit card in your own name if you don't already have one. This establishes your independent credit history. If you're under 21, you'll need someone over 21 to co-sign unless you can prove that you have the income to cover your payments. Here are some important credit card guidelines to help make sure you get off to a good start:
Shopping for a card
- Shop around for the right card. Look for low interest rates and no annual fees.
- Make sure you get all the details. Some important questions to ask: What's the interest rate? What's the billing cycle? How long is the grace period? How much are late fees?
- Don't be lured by incentives. Understand what you're getting, and be sure to read the fine print.
Managing your debt
- Don't be tempted to sign up for multiple cards. You only need one.
- Never charge anything under $10. Use cash instead.
- Try to pay off your balance completely each month.
- Pay your bills on time. Late fees and interest add up quickly.
- Check your statement to make sure all charges are legit—and that they're yours. Credit card fraud can happen to anyone.
Common mistakes that can lower your score
- Missing a payment
- Maxing out on your card
- Only making minimum payments
- Applying for too many cards at once
- Waiting to report a lost or stolen card