By Stephanie Todd
Most BYU students have probably experienced the following scenario, possibly multiple times. They receive an envelope in the mail containing a brand new credit card, promising a low monthly interest rate and representing endless possibilities.
The student can respond in one of two ways. First, they can immediately cut up the card and throw it into the trash. After all, they''ve heard the credit card horror stories enough to know it is better to avoid those cards all together; they have a fear of credit card debt. The other option is to grab the card and head immediately to the mall.
The first option might seem like a good philosophy and work for a while, however, one day that student may want to buy a house or a car.
Suddenly they have run into a problem. They have established no credit.
Students need to establish good credit history now to prepare for the future. Nate Robertson, lead teller at America First Credit Union, said people need to think ahead in order to make big purchases in the future.
'The sooner you establish credit the better,' Robertson said. 'The longer your length of credit history, the more prepared you will be in the future. Most financial institutions recommend at least two years of credit history to qualify for a big loan.'
Many students are unaware of the necessity to begin establishing credit years before they may actually need it to acquire a loan for a house or car.
One BYU couple, Josh and Jamie Wouden, hadn''t thought much about establishing their credit. In this aspect, they typify many BYU students. While Josh has two more years until he finishes law school, the Woudens hope to purchase a home eventually. As a result, they began thinking about establishing their credit.
'We''re glad we found out now,' Jamie said. 'We don''t want to rent for the rest of our lives; that''s a bad deal.'
So what do experts recommend in order to establish good credit history?
'Establish a relationship with a reputable financial institution by opening up a savings and checking account,' Robertson said. 'Then, request a line of credit or an overdraft protection. This is like sticking a toe into the ocean to check the temperature. Then, when people feel ready to jump in, they can get a credit card, up the limit on their current credit card or take out a small loan on a car.'
Many students are under the impression that having a lot of credit is what is most important. This is a misconception, said Karrie Wight, senior loan officer at Utah Community Credit Union.
'A few lines of credit with good pay history is better than a lot of credit with bad payment history,' Wight said. 'Some people get too many lines of credit and lose track.'
Robertson said the key is to start small. He recommends starting out with a low limit, possibly between $300 to $500.
'Choose an amount for your limit that you know you can pay off,' Robertson said. 'Then pay off your entire balance monthly.'
The Woudens decided to follow the route to establish their credit. They plan on getting a basic credit card and using it to buy gas and groceries. By paying off their balance every month, the Woudens will begin building their credit for the future.