Some consumers may be in a position that many consider to be similar to individuals with a bad credit score, in that there are those who have no credit history, due to either being quite young or having never used any line of credit, and there are ways this can cause problems in an individual’s financial life. Obviously, credit card debt is a major problem for numerous consumers across the nation, but the use of credit to build a good credit history is necessary in life when it comes to a variety of financial factors, like obtaining a mortgage.
Yet, there are options which have been used by various consumers to build a good credit history, with the use secured credit cards and unsecured credit cards as a way to begin establishing some form of credit score and history. However, there are financial advisors who caution young individuals particularly about establishing a credit history, as irresponsible spending, saving, and budgeting habits can lead to a bad credit situation early in one’s life.
As an example, recent changes in student credit card rules were made so that young individuals who may be able to qualify for a credit card would no longer be able to easily find a card offer which could be used to do damage to their credit history. While many college students will still need a parent to cosign for an unsecured credit card, there are those who are using secured credit cards as a way to begin establishing a good credit history.
Secured credit cards require collateral, which is typically in the form of a deposit into a bank account, and the amount which is deposited is usually the secured credit card’s limit. This can be helpful in that a small line of credit could be used by a young individual to make affordable purchases each month and, with proper budgeting, promptly pay these charges off, which could reflect well on their credit history.
While secured credit cards are often used to either establish a good credit score or rebuild a bad credit score, reputable servicers who offer these types of cards do report activity to the top three credit bureaus, which is necessary for establishing a good credit score, but it can also hurt an individual’s score if the card is not properly used. There have been numerous individuals who have both repaired and established a credit score with the use of a card like a secured card, but again, no matter what type of credit card one uses, proper financial practices, spending, and budgeting habits will be necessary so that these cards will not carry a balance, charges will not get out of control, and a young consumer will not do damage to their credit score early in life.