Establishing credit can be a challenging task for someone entering adulthood. A good credit history is generally required to rent an apartment, get an auto loan and may even be part of the screening process for employers. But if you need credit to get credit, how do you go about establishing it?

What Does Establishing Credit Mean?

Your credit file is a vital document that is used to obtain the necessities in life, and building a good report should be a priority. Your credit file is your financial report card and it may be reviewed by just about anyone that you could owe money to. That means not only home and auto loans, but this also includes your cable and electric bills, and even cell phone contracts.

Before extending you credit, lenders and service providers like to see that you are responsible and pay your bills on time. The only way to determine that is to look at your history of repaying debts. By looking at your credit score and credit file, lenders can estimate just how risky a client you may be and how likely they are to get back the money you will owe them.

How to Establish Credit

As you can probably see, establishing credit for the first time can be a bit tricky. Since it often requires having a credit history to receive credit, where do you start?

The first thing you want to do is to open a bank account and maintain some savings in that account. By having some net worth, it shows creditors you have some sort of income and ability to manage money. Once you have opened a checking and savings account, apply for a credit card through your bank. Since you do business with them, they are more likely to extend a small amount of credit to you.

But just having a credit card is not enough to build a history. You have to make your accounts active by using them regularly. That does not mean using your card to purchase items you cannot afford. While it is important to use your credit to keep it active, the amount doesn’t matter.

You simply want to use your card minimally and pay it off in full in order to build a good history of using credit and repaying your debts on time. What you want to avoid is taking out cash advances or using more than 30% of your available credit as it can hurt your rating.

If you have trouble obtaining your first credit card, having any type of service that has a revolving fee, such as an electric or cell phone bill, can help build your credit history. While these services usually do perform a credit check, you can often negotiate to pay two months of service fees upfront instead of getting approved through a background check. It may require a bit more money upfront, but this will help you quickly establish credit.
Another trick is to obtain a secured credit card. A secured card means that there is an asset linked to the account, which the creditor can take if you fail to make payments. This generally takes the form of depositing cash into an account to “secure” it.

Establishing credit is only the first step to building your financial report card. You want to be sure that you not only have credit, but that you are building a positive credit history. That means always paying your bills on time, keeping your available credit to debt ratio low, and keeping accounts open in order to build a history of relationships with creditors and lenders.

Millionaire Money Habit: Your credit report is your financial report card that can help you or be used against you negotiate throughout important aspects of your life. Take building your credit rating seriously and you will save thousands of dollars in interest payments and fees throughout your lifetime.

You live, you work most of your life, and then you die. Morbid thought, I know, but if that’s how it is then why save money?

I know a lot of people, including close family, that have gone their entire life spending and never even stopping to think about saving. No retirement plan, no cushion in the bank, no worries about being able to pay the bills – just spend. The interesting thing is they seem to have very little stress about it.

Their philosophy – we work to earn in order to have, and you never know what tomorrow will bring. Some people save, save, save, and never get to enjoy anything because they’re too worried about saving.

Savers are constantly concerned about how much they are spending, if they’re saving enough, and when they’ll be able to retire to start living. What a sad way to go about your days.

What if your life ended tomorrow? What if you have enormous medical bills in early retirement that wipes out all of your savings? What if your investments crash and you lose it all? Maybe there’s too many “what ifs” to worry about it and we should all just live for today.

What if you just enjoy the money you have now while you’re young? Why not stop thinking in terms of “when I retire” and have a fulfilling lifestyle now?

Sounds tempting, right? Neither way is the sensible way to go about it. There needs to be some sort of middle ground. There needs to be a strategy to have plenty of money to be able to fully retire and support yourself, yet an ability to live for today.

The last thing you want to do is look back at your life and regret not ever having one, so think about what you want to accomplish today. Then think about what it is that you want to accomplish during retirement, how much it will cost, and how to get there. There is a way to balance the two and enjoy a complete life – not just one during retirement.

Millionaire Money Habit: Saving and managing your money is important, but it is also important to not get too caught up in being overly frugal. Be sure to take care of yourself now, as you never know what tomorrow will bring.

It’s no argument that Warren Buffett is one of the greatest investors to ever live, if not the greatest. When Warren speaks, the entire financial and investment world listens. While many successful investors will go on to critique and disagree with his statements, more often than not he is right.

In short, it would be foolish to not take his advice.

One of his most notable philosophies is to do exactly the opposite of what everyone else does. “Be fearful when others are greedy and greedy when others are fearful.” This, he has said during interviews, is the strategy that has made him rich.

It’s during these times, when everyone else was scared, that he invested in the market as a whole or in a particular company that offered opportunity. While others may have thought Buffett was being foolish and taking too big a risk, he saw at as absolutely no risk at all. Companies that were highly valuable were selling at rock bottom prices. During these volatile times, like we are experiencing now, are exactly the circumstances that allowed him to make the most wealth.

So as you look at your 401k statements and compulsively check your Ameritrade balances, remember your ultimate goal. Keep a level head and trust that Buffett knows exactly what he’s talking about.

If I had only listened to him when stocks hit an all time high last summer . . .

Millionaire Money Habit: Remember that it is a good thing that markets are volatile. It provides you with an opportunity to make money, but it also tests your ability to keep a level head. The only time you actually are guaranteed to be a loser with your investments is when you sell at a loss.