Why Should You Get a Credit Card Early - Lower Interest Rates and Attractive Discounts

You might have seen Hollywood movies where teenage kids fight with their parents over credit cards being blocked for rebelling plenty of times. Have you ever wondered why those kids get credit cards so early given that they were not even 18?

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Simple, by being an authorised user of their parent's credit card. In India, most 'adults' get credit cards only after they begin their careers, which is commonly above 21 years of age. However, when it comes to credit history and credit score, the earlier you start, the better. Why? Keep reading.

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How does strong credit history matter?

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Before getting into credit history, it is important to understand what a credit score is. It is a simple three-digit number, ranging from 300-900, that indicates your value as a responsible borrower. When you apply for a credit card or a loan, money lenders examine your credit score to validate how risky you are and will they get their money back on time.

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Needless to say, the longer your history of paying your dues on time, the better your credit history is. It is the most influential element that makes a credit score. Therefore, it is important to establish your credit profile early in life so that your financial future gets streamlined. There's more to it than just financial stability. Here they are:

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Learning about being responsible credit usage at an early age makes capable adults

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When kids learn good credit habits at an early age, they become responsible about finances. So, when they move out and enter their career, they already know how to manage credits and benefit from them.

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Buying a car/house

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Isn't it almost everyone's dream to own a car and a house? But dreams like these come at a hefty cost. If you can't afford it from your saved money, you may have to take help from an auto loan. But even to be able to get approved for that loan, you should have a good credit history and a stellar credit score.

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But, if you don't, read our blog on how you can improve your credit score with auto loans.

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Being eligible for lower interest rates and attractive discounts on credit cards & loans

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Some of the major areas where credit score and credit history are loans and credit card applications. With good credit history, low credit utilisation ratio, and balanced credit mix, you can easily become eligible for a higher credit limit, attractive offers, low-interest rates, and longer repayment duration. When you have built a strong credit history from an early age, it comes as a great advantage when you become older and need to apply for any major loans.

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Road to building up your credit score

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When you are young, you may be dependent on your parents financially. But that doesn't necessarily mean you cannot have credit. As a young adult, start building credit is not as impossible as it seems. Here are some ways to get a head start on early creating a strong credit history.

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• Get secured credit cards: Secured credit cards are great ways to build credit. As the name suggests, these credit cards require a security deposit. So, if you cannot pay your dues for 90+ days or default on your repayment, the lender will deduct the sum from your security deposit.

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• Apply for college student credit cards: These types of credit cards are much easier to qualify for, even with zero credit history. If you get this kind of credit card during your college days, it will give you ample time to build a solid credit history. If you are nervous about overspending, start small – make a couple of purchases only. But, ensure to pay the dues back on time.

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• Sign up with a service that reports to credit bureaus: Today, you have many services that report back to the credit bureau. For instance, you can take a postpaid mobile connection, avail of buy now, pay later options, borrow money or salary loan from digital lending services, take a loan against your fixed deposit, etc. By making on-time payments through these services, you can easily build and protect your credit score from slipping.

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• Authorised user of someone else's credit card: If you have a family member whose credit score is high, then get an add-on credit card from them and become an authorised user. Thus, you can reap the benefits of their good credit history, on-time payments, and minimum credit utilisation ratio.

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• Getting a co-signer: A co-signer is someone who takes full responsibility for paying off the loan or credit card balance if you fail to make payments. Thus, it is risky for the co-signer as it could hurt their credit score and jeopardise their relationship. However, if you are still dependent on your parents financially, they can be your co-signer.

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• Repay your debts on time: This is probably the essential rule for improving your credit score. Once you get a credit card or loan, make sure you don't miss your payment due date by even one day. This way, you'd be able to avoid paying late fees and high-interest rates. 

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If you are not good at remembering dates, consider setting up an auto-debit option. Not only will you save your hard-earned money, but your credit score will also improve drastically if you pay your bills on time.

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However, check your credit card statement and ensure you are not being overcharged before making any payment. Check out this beginner's guide on avoiding credit card penalties.

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• Keep your credit usage in check: When you apply for credit, you may become eligible for a large sum as a credit limit. But, try not to get overboard with the usage. Remember, the lesser you use your credit limit, the better your credit utilisation ratio is. And the lower this score is, the better is your credit score.

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Final Thoughts

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Now that you know how much having a good credit score matters, start building up your credit history early in your life by following the above-mentioned ways. By starting early, you will also develop responsible credit habits. Make sure that once you have a perfect credit score, continue to maintain it. Even a small dip in your credit score can cost you thousands of money as interest.

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