Editorial/Op
It Takes Money to Make Money
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By J. R. Dalton
As a twenty-something working at a bank, I know all too well how hard the “Gotta have money to get money!” fact of life can be. The same principle applies to credit, “You have to have credit to get credit.” Not having it can be a big hold up in your growth as a responsible adult. It can keep you from taking off in the direction you want in your life, your future family, and your budding career. This crippling paradox springs up again and again when you are trying to make a life for yourself, but there are ways to get the credit monster to be a happy little credit puppy. I hope that the trendy youngsters and thrift crunching kids with swagger out here in Central will appreciate another youth giving some tips on establishing credit. Here is a mash-up of the research I’ve found by Dave Ramsey and my own life experience thus far which I’ve put into 5 easy steps.
Step One: Get a Job – The basic fact of the matter that we are dealing with is that it takes money to get money’. So it is imperative that you are bringing income to the kitchen table when trying to cook up your credit feast. This means you need to have a bank account, pay your taxes, and learn to manage that money whether you pay bills or not.
Step Two: Save Money – There are two reasons that you will want to save money. Reason A: Because you need to have cushion for all of life’s little circumstances. After all, MasterCard can’t fix your flat tire or the heat in your car mid-winter, especially if you don’t have the credit to get a “MasterCard”. Reason B: Because you are going to want a CD (Certificate of a Deposit). A Certificate of Deposit, in laymen’s terms, is an account with a bank which you open by giving them a sum of money to hold onto. Banks will actually pay you a percentage of whatever you gave them just to let them hold onto your money for you!
Step Three: Get a CD – Back in the 80’s CD interest return rates actually skyrocketed to nearly 20% at some competitive banks, but don’t get too excited since the average interest rate for CD’s today is less than a percent. The goal, however, is not to make money off of the interest your CD makes, but instead to use the CD as collateral for your first small installment (loan). Collateral is what you give a bank to keep if you were to not make your payments. Ergo, it would be better to have a CD be your ‘collateral’ than your car. Besides, the money you put into a CD is still yours once the Certificate matures.
Step Four: Apply for a Loan – Start with a loan rather than applying for credit cards. Credit cards are a great way to establish “revolving” credit; however, they should be avoided if you aren’t yet disciplined with budgeting and spending. So apply for that loan – you never know what you’ll get… until you try. (but don’t be excessive; wait to get feedback from one bank before you go to every other one on the block. The credit bureau displays every time you apply for some sort of credit-necessary item, e.g., a new cell phone, car, or loan.)
Step Five: Slowly Make Payments – Most credit card providers only look for 6 months worth of established credit. That means that once you’ve taken all of the above steps, it won’t be long before the offers for more credit will come in. (Be careful though, not every offer is a wise investment. It’s important to have other, older, and wiser people in your life to ask questions in these situations.)
Bonus Step Six: Bask in the Glory of Paying Off Your First Loan – This may be a year or two later when the time comes that you have made your payments and officially have enough reputable credit with the bank. I have successfully paid off two loans and look forward to earning more credit in the future. For now, I hope that these tips will help other young people like me to get the ball rolling on the road to their future.
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