Letter to a Twenty Somethin': Learning the Value of Good Credit
Learning the Value of Good Credit: Breaking the Stigma of Being Black with Bad Credit
By: Briana Elmore
Dear Twenty Somethins’,
We are still young and have time to correct some of our financial missteps while we are along our financial journey. However, keep in mind that your credit is extremely important as you build your foundation. It is important to spend money wisely and utilize your credit to acquire the proper financial reputation. We all have our own professional and personal aspirations; having good credit is essential achieving them. Credit is also beneficial to to build a business, own a home, purchase a vehicle and receive any other form of a loan.
Credit is often times the only introduction and opportunity to interact with creditors. In many ways, your credit is like a financial resume that can impact your ability to receive loans and other funding. Established credit may help you on the path of obtaining private student loans, home loans, auto loans, or credentials for renting an apartment. Although life happens to us all, it evaluates your financial picture and your ability to repay any creditor. If your finances are not in order, you may be viewed as an unfavorable consumer.
Growing up, I was taught to almost fear credit cards and anything regarding credit because of the power that it possessed to either make or break a situation. Due to this fear of credit cards, I avoided any credit card offers or opportunities that were sent to me in my collegiate years. I wanted to stay clear of any opportunity that may take me down the path of poor credit. I never realized that a lack of credit establishment can be just as stagnating. Once I acquired my own living expenses, my awareness unveiled.
A lot of my fellow Twenty Somethins’ have also shared with me their experiences with a lack of knowledge regarding credit establishment. This is a very common experience that has been widely circulated within the Twenty Somthin and Black community. I have heard of encounters like my own as well as situations where some of my peers took on multiple credit cards and maxed them out to make ends meet or to splurge on high end items. From those instances, they have shared lessons learned regarding interest rates, credit limits, amounts of open credit cards at one time and healthy payment options to reduce credit debt.
There are tools available for each of us to get to a point where we have clarity necessary to break down the stigma of being black with bad credit. The following steps can be used as a means to both establish and improve credit to have a lasting favorable financial representation.
For those establishing credit...
Get a secured credit card.
A secured card is a credit card that you can open up with your own money from an established account at your banking institution. Often times you can open one with an agreed upon limit that you would put down as the collateral for the card. This is like a credit card with training wheels that will show your bank that you can be trusted with properly repaying debt generated in a reasonable manner. Use the card responsibly for at least 6 months.
Charge items that you are able to pay off within a reasonable amount of time.
You can use a credit card to charge for small items such as gas or groceries. These charges are typically smaller charges that you would typically encounter with your income based on your ability to afford.
Work to establish a healthy credit limit and a good interest rate.
When establishing a credit limit for opening a new credit card that is not secured, it is important to establish a credit limit that is large enough for you to not reach in your regular usages, but small enough for you to handle repayment. It is also vital to discuss a small interest limit that is no more than 10-15% interest.
Check your credit health regularly.
Utilize free tools such as Credit Sesame or Credit Karma to properly track your credit score without a negative impact on your credit score. This will allow you to keep a healthy relationship with creditors if there are discrepancies on your account.
For those improving Credit...
Pinpoint what has impacted your credit negatively.
Once you know where your problems with your credit are, you can then further investigate what is needed to rectify the issue to move towards credit rehabilitation.
Establish a doable repayment plan with the creditors to satisfy the loan.
It is important to be transparent with creditors on your ability to make payments. Most creditors would prefer to be given a small payment on a loan rather than no payment at all. If you have amassed a large amount of debt, it is most likely not going to be an amount that you are able to pay off super quick and will require some time and patience to repay. Once established, set up a scheduled reminder and budget for the agreed upon payment.
Avoid the closing of credit cards for a quick fix to improve credit.
Eliminating cards will not eliminate the debt that you have acquired. Deal with the debt that you have until you are at a point where you are comfortably re-building your credit.
Avoid opening any further cards.
Do not transfer your debt from one creditor by opening a new card with someone else. This transfer of debt will not be beneficial to building a healthy credit score. It is best to refrain from new cards until you have established a good standing with credit management.
Join a community that will support and further educate you on credit health.
The Budgetnista has the Live Richer Community that teaches you different ways to improve and capitalize on the improvement of your credit. There, you will be supported and educated on how to take steps towards continued financial stability.
Positive credit establishment is something that is obtainable with anyone who is willing to put forward the needed effort. We call it, due dilgence! As highly capable, multi-talented, multifaceted, Black Twenty Somethins’ the world is ours to have. Let’s conitnue to make an impact for generations to come.