A part of modern living involves getting and using credit. Many people would proclaim that it is better to live on the cash basis and to never owe anyone anything, and that would be good advice, but it is nearly impossible to live that way today. For the most part, American adults will have to get credit at some time or another and one of the best places to do that is through your local bank.
Young adults who are just starting out often find it difficult to get credit and when they do get it they often have a difficult time repaying it. Credit mistakes early in life can follow a person for a long time, often as much as seven to ten years, depending on the type of problem encountered. It does not have to be that way.
A good place to begin with credit is with your local bank. Often the local bank is willing to lend small amounts of money to their younger customers. Banks understand that loaning smaller amounts to begin with they can help young, working adults to better understand the basics of credit and repayments. These small cash loans, usually in the $500-$1000 range, are a great way to establish a good credit foundation that can serve young adults as they grow and require larger amounts of credit.
Getting a loan from the local bank and repaying it on time will also allow young adults to begin their credit reports on a positive note. Many young adults, especially those who are in college, often begin their credit life by taking on a credit card and charging it to the max. This can cause a few problems. The first problem is that it can skew the ratio of debt to income for these people. Most working college students do not make a great deal of money, and that low number when used as the basis for the debt to income ratio can result in a negative on the credit report. Also, if payments on credit cards are missed, and they are missed a great deal of the time, the student can end up with several late payment notes on his or her credit report.
The same can be said about a bank loan. A missed payment is a missed payment, but young adults tend to be more careful when paying back a loan to a bank. If parents discuss the importance of prompt repayments, the young adult will most often be more diligent in making the payments and this will go a long way in helping the person with future credit.
Another method for helping establish credit through your local bank is to apply for a secured credit card if they offer them. These credit cards require a deposit be made into an account and the credit limit on the card will not exceed the amount that is in the account. This can be a good way to teach young adults about using credit cards and it can also be a good way to get some positive marks on their credit reports.
Once some credit has been established and payments have been made, young adults should be directed to inspect their credit reports. It is amazing how little is taught in school about credit reports and credit scores, given the importance they play in everyday life.
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