Credit: Why paying with cash won’t always work
Some of us know exactly where we want to be in 5, 10, or even 15 years. Some of us, to be frank, don’t. Whether you’re a goal-oriented planner, or a laid-back, go-with-the-flow free bird, it’s good to start thinking about establishing credit. Early.
Good credit can help you get a loan for that new vehicle, home, or vacation for which you've long been waiting. But a good credit score doesn’t come overnight, and there are many easy ways that you can start small. That way, when you want to borrow a bigger loan for a car or a house, your credit score will be awesome and you will be able to borrow from your financial institution.
“Many credit unions offer small credit builder loans, often secured by shares in the member’s account,” said Maria from Maine Highlands Federal Credit Union.
What are shared secured loans?
To put it simply, it means borrowing for an amount of money that you already have in your account. Here is a scenario:
- Penny has $1,000 in her savings account.
- She has just moved into her new apartment, and needs furniture: a desk, a bed frame and a mattress.
- She has found all of these items at a cost of exactly $1,000.
- Penny decides to apply at her credit union for a $1,000 loan, instead of spending her savings money.
- When checking her account balances online, Penny notices that the $1,000 in her account is now marked as unavailable, although it is still there. She can’t use it for things like groceries or gas. But each month, the loan payment is made, and she regains access to her money.
- At the end of her monthly payments, Penny will have built up some credit, made regular monthly payments, still have her $1,000, and have spent much less in interest.
So why is building credit a good thing?
Purchasing a car or home are two major life purchases. Vacationing, traveling, and furnishing homes can also be big expenses. When these events happen, it’s good to be prepared. Since having $20,000 saved up for a new car isn’t always realistic, asking for a loan is probably the way to go. And with good credit history, you won't have to sweat it!