By: Emily Ferreira, Managing Editor
When you are fresh out of high school and entering college for the first time, it is very easy to make poor financial choices. Once you get enrolled in college, credit card offers almost seem to fall out of the sky. It is easy to think that you could get a card just for emergencies or use your card to squeeze through until the next payday.
Soon, you find yourself struggling to figure out how you are going to pay your bills and your credit card payments. At first you struggle, and soon, unless you take actions to fully resolve your financial mess, you find yourself in a position of being completely helpless to address your financial affairs in a positive way. One option is a student loan.
College is a tough time for young adults trying to strike it out on their own. The credit opportunities are great, and the temptations to slip into unintended financial ruin are dangling in front of them daily.
The numbers of college students and graduates who have to knock on mom and dad’s door for a financial bail out are staggering. What happens when mom and dad cannot or will not help their son or daughter with a financial bail out?
If the financial pressure crushes the student in advance of getting their degree, the student might feel that dropping out of college to pay their bills is their only choice. Once they are out of school, returning to school to finish their degree is a bigger challenge than they had imagined, and many never return to finish their studies.
Other students are able to limp through to the end of school, and instead of leaving school facing a bright new world, they are leaving school facing the pressures of student loans, a heavy debt load, and frequently, a ruined credit history.
The road back to good credit is a long and hard road. But, with a good strategy, a determination to succeed, and a lot of self-discipline, there is good reason to have hope for the future.
Building Good Credit Starts With…
Paying Your Bills On Time.
Yes, the electric company will do a credit check on you before turning on your lights. But, they will not refuse to turn on your lights simply because you have bad credit. Instead, the light company uses your credit to determine how much of a deposit you should pay to get your lights turned on.
Few people realize the importance of paying bills on time. When you are trying to establish good credit, if you can pay all of your bills on time for six months, then you will have a leg to stand on when showing creditors that you can be trusted with their money.
Starting Small With Small Loans.
Payday loans are a good starting point on the road to building good credit. When you have no credit or bad credit, you need to find someone who is willing to trust you for small amounts of money over a shorter time period.
With a payday loan, all that is usually required of you is proof of employment, a checking account, and a commitment to pay back the money on your next paycheck. The commitment is usually handled with a post-dated check written for the amount of money being borrowed plus the payday loan fee.
In these days of internet availability of services, the entire process can be handled through electronic transactions where money is deposited into your checking account electronically and the payment amount is electronically debited from your checking account on the specified day.
Payday loans are one option for building a credit history with really short-term loans in the range of two-weeks to one-month. Another option is the smaller finance companies that will loan you a couple hundred dollars to be paid back over four- or five- monthly installments.
Gas Cards and Retail Credit.
Once you have some established credit, gas cards and retail credit cards are fairly easy to acquire. Most retailers see these retail credit cards as a method to get you to shop in their stores more often, so they are keen to get their credit cards in your hands.
Once they are certain that you are someone who actually pays their bills, they are willing to extend their store credit to you to get you to spend more money with them.
Small Bank Loans
This is a technique that few people are aware of. For a small interest fee, you can establish yourself as a top-flight credit consumer.
You can go to your local bank and borrow say $500. Instead of running out to spend that money, deposit it into a savings account at another bank. When each monthly installment comes due, go to the second bank and withdraw the money to make the payment at the first bank. At the end of paying your first loan, borrow a little bit more money from the same bank. Then repeat your previous experience.
An expansion on this principle is to take the $750 you get from the first bank on the second loan and then deposit this money in the second bank as usual. Then go to the loan department of the second bank and ask for a loan from their bank. If they hesitate, tell them that you want to get a secured loan using the money you have in your savings account at their bank. Once you have this money in hand from the second bank, deposit it into a savings account at a third bank.
This principle can literally be looped through several banks simultaneously, allowing you to build good credit with several banks at the same time. The beauty of the idea is that you are using one bank’s money to establish credit at another bank, utilizing as many banks as you might feel comfortable using.
There really are no limits to how far you can take this concept, except for two things. One, you need to be sure that you can actually pay the interest accrued on all of the loans you take out. And two, you need to make sure that you can make all of your payments on time, every time.
With each pass, you can take the loan amounts to the next level. Using this method, you can actually work yourself to the point where you could literally walk into any establishment, and based on your own credit history be able to take a huge loan on your signature only.
Short-Term Solutions In Long-Range Planning
When you are re-establishing credit or establishing credit for the first time, you may find that on occasion you may not be able to pay a bill on time. Say for example that your loan is due to be paid on Wednesday and your paycheck will not arrive until Friday. Of course, you will need to weigh the pros and cons of each individual transaction, but when you are trying to get established, now is not really the time to pay any payments late. A late payment will usually set you back as much as six months.
Rather than risking a late payment, often it makes more sense to pay a small fee to a cash advance loan company so that you can make your payment on time. It should be noted that bad credit payday loans should never be treated as a solution in itself to any financial problems. Bad credit payday loans are a temporary solution to temporary cash flow problems. But, when you weigh a six-month setback in building your credit to paying a few more dollars for a no credit check payday loan, the payday loan fee is money well spent.
Recovering Credit After a Rough Start
Restoring your credit is not as hard as you may have thought it would be. A good strategy, a determination to succeed, and the self-discipline to see your plans through to fruition will help you to establish or re-establish good credit.
The day that you walk into the new car dealership and drive out with the car of your desires with only your signature as collateral, or the day that you go to the bank to sign the paperwork on your new home purchase, you will know that all of the hard work you have done to get to this point was worth it to you. Now just don't forget about insurance.
