Q: My older brother recently applied for a home loan and got declined because he has a bad credit score. I thought he was good with his money, so now I’m worried that I might end up in the same situation! I’m 18 so probably at least five years off needing a home loan, but what should I be doing now to establish a good credit rating?
A: It’s important for young people to maintain a good credit rating, so the fact that you’re already thinking about this is a really good start.
Many people, especially young people, don’t understand how credit works, and why should they when they probably haven’t had any experience in it or had any real need to be aware of things like credit ratings or credit scores in their younger years.
The credit bureaus monitor your performance in terms of your responsibility in borrowing money from very early on. For example, telephone bills. Young people mightn’t realise that if they don’t pay their telephone bills they will get a mark against their credit record. It will be registered on the system and it might stay on the system for many years, and that could stop you from being able to borrow money in the future.
When you want to borrow money, one of the first things a bank or lender will do is a credit check on you. If they see that you have red marks against your name they might think that you’re a high credit risk and guess what, you won’t be able to borrow money.
There are some really simply things that you can do from an early age to help get on the right path to a good credit score, and avoid the things that can negatively impact your credit score. These include:
- You’ve got to be a very good saver and demonstrate you can save money;
- You’ve got to pay your bills on time;
- You’ve got to stay away from specialty finance providers like payday lenders; and
- You’ve got to be careful about how many applications for credit you make.
These are things – basic things – that particularly young people need to be very aware of, because you don’t want to unknowingly wreck your chances of buying your own home in the future. Being financially responsible now and caring about credit from a young age will certainly help get you off on the right foot.
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