In high school, I learned very little about money management, credit history length and how the two affected one another. My dad wasn’t the greatest resource to learn from either, as he lived on credit cards to keep him afloat until he received payment from his completed construction jobs.
So, what does an 18-year old boy do with little money in his pocket and limited knowledge of credit cards? It’s free money! Food. Clothes. Movies. Toys. Spend every penny of open balance on meaningless things.
1. Charge It Up, I’m Not Paying
I received my first credit card on a college campus where I attended class. In the courtyard of an event held, I walked from booth to booth, filling a plastic bag full of giveaways.
As my bag filled, I thought, “I wonder how many times I can go around and collect free stuff?” The last booth I approached gave away a t-shirt with every credit card application. No obligation, no contract.
So I did what most teenagers do, I filled out the application and walked away with a brand new t-shirt. Little did I know, a week later a credit card would show up. And when it arrived, I ripped opened the enveloped, called the number on the sticker affixed to the front of the card and began spending.
I maxed out the card several weeks later. As I mentioned before, I had little money and no knowledge of credit, so I dismissed the payment notices and pressed on through life.
The credit card company continued sending me statements, so I called the number on the statement and asked, “Why are you sending me these bills?” It was than I realized credit cards are not free money.
2. Paying for Your Mistakes
With newfound knowledge of credit, I began making small payments on the maxed out balance. I didn’t make much of a dent on the balances so I increased the monthly payment several dollars. I kept paying and realized the balance remained unchanged. Note:create a payoff plan and stick to it. Don’t pay the minimum due because the balance will never decrease.
Good credit history length is more about showing creditors you know how to manage your finances by not accumulating hordes of debt. Remeber, credits cards are revolving debt, whereas car loans are installment loans. Revolving debt has no end date, whereas installment loans do. Despite your age when your credit history begins, what you do stays with you the rest of your life.
I’m thankful I caught on to the credit game at an early age. Unfortunately, others are not so lucky. They continue applying and charging on frivolous things,potentially ruining their financial future.
Educate your yourself and your children to ensure you don’t fall into the $856.9 billion consumer debt trap. As a teenager, think about what your doing with your credit because it will effect your ability to buy a house, car or job. Yes, credit history length determines if you get hired or not.
Your financial future depends on your ability to manage finances and resist the urge to apply for credit cards.