Never Borrowed Money Before? You're Not Alone


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When it comes to borrowing money, some people borrow way too much. Other people have the opposite problem. Borrowing is essential to developing a credit history. That's what credit is, after all - borrowing money from professional lenders. A credit history is a record of all of these transactions - how much you borrowed, how long you were allowed to borrow it before you had to pay it back, and how timely you were in the repayment of your loan. These are key events in the life of someone developing a responsible personal finance history. But some people avoid borrowing at all.

Most people who don't borrow have a mixed up idea about credit health. The idea goes that if they make no mistakes (by not doing anything at all), they'll have a sterling credit record. This couldn't be more untrue, though it does seem like common sense if you don't know anything about credit. A good credit history is about borrowing, but only doing so when you can handle the responsibility and pay your loan back on time. This even applies to things like utilities - energy and services leant to you before you have to pay the company back. If you wish to develop a strong credit history, so that you can one day buy a house or a car or send your kids to college, you'll need to start with some concrete borrowing behaviors that you can really handle. Here are some examples.

A Small Loan - A small loan is going to be easy to understand, and easy to repay. Many lenders will be willing to draw up a simple loan just so you can start to build your credit. Borrowing money for this purpose will always have you borrowing less than $1,000 (or the equivalent in your local currency). You'll see the amount of time you have to pay back the loan, and the cost that you will pay in interest and fees. Pay the loan back on time, or early, and you'll have a great mark on your credit history. In fact, you don't even have to spend the money. Just take it out and use it to pay back the loan over a few months. You'll pay a little in interest, but the benefits to your credit will be worth it.

Credit Builder Card - Lots of banks have cards specifically designed for people wishing to build credit. These will usually require you to make a deposit of $500 or so, which will be the amount of money you borrow against. Never cancel this card, even if you don't use it after you've gotten your money back. The first credit card in your credit history is the beginning of that history. You want it to remain open for the rest of your life.

There are plenty of ways to build credit. Most of the time, it's about being responsible with payments you owe, but you've also got to participate in "risky" behaviors like credit cards and the like. In the end, you'll build great credit if you use them wisely.