Establish good credit one step at a time. To avoid debt, do not apply for credit cards or a bank loan until you know you can handle the basics of saving by following a budget and paying bills on time.
To get a head start on establishing good credit, open a joint savings and/or a checking account with a parent or guardian before you turn 18.
Open A Bank Account
Even though your credit history does not reflect account activity, credit applications often request bank account numbers. Maintaining active checking and savings accounts with no checks returned for insufficient funds will show you manage money responsibly and are disciplined enough to save.
Use An ATM/Debit Card
After you have proven your ability to manage
checking and savings accounts responsibly, add
an ATM/Debit card. While it does not establish
credit, using an ATM/Debit card can help you
practice responsible spending without risking
debt.
- Each transaction subtracts money directly from your checking account.
- You cannot buy something if your available balance is less than the purchase amount.
- There are no interest or late-payment charges, but other fees may apply.
| Choosing A Bank |
- Identify several banks with strong reputations.
- Compare their services and fees.
- Look for conveniences such as
ATM, debit, electronic and
mobile banking services.
- Choose the bank that best suits your needs.
Do not choose a bank just because it offers gifts, vouchers or cash rewards for new accounts.
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For More Information
The USAA Educational Foundation publications Get MoneyWise and Making Money Work For You
offer more information.
Consider A Secured Card
If you do not qualify for a credit card,
consider a secured card backed by your savings
account. The credit limit is usually low, and
interest is calculated just as it would be for a
regular credit card. Ask about associated fees
and avoid cards that charge processing or
application fees. Use it carefully, and make
payments promptly to establish your
creditworthiness.
Get A Credit Card
When you are ready, apply for a major credit card. Shop around before you apply.
- Look for a card with no annual fee and low interest rates.
- Use caution with cards that offer low introductory rates. After a few months, the rate goes up — often higher than cards with no introductory rate.
- Take time to understand the card’s terms, conditions and fees, making sure you can meet the requirements.
- Do not apply for more than one credit card at a time. Each request appears on your credit report and lowers your chances of being approved.
If you do not qualify for a bank credit card, apply for a department store charge card, which is easier to obtain. Use it in moderation until you have established a good payment record. Then apply for a bank credit card and formally close the department store card account with the merchant.
When you receive a credit card, keep the balance low, and pay
your balance in full each month to keep improving your credit
reputation. If you are unable to pay your entire balance at
once, stop using your card until it is paid in full.
Self Test #1
- Credit is free money for your use. T or F
- ATM/Debit card use helps establish credit. T or F
- You do not have to pay interest on a secured credit card. T or F
- You should not apply for more than one credit card at a time. T or F
Answers
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Basic Money Management
Basic Money Management
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