Understanding the importance of money and credit needs to start early so young people can build healthy credit habits. This is necessary because certain credit history is a prerequisite for obtaining a credit score.
In turn, this makes it easier for young people to transition into adulthood because they can access loans, insurance, and other financial products at relatively reasonable rates compared to those who do not have a credit history.
Young people can build their credit history in several ways. One of the best ways is to get a credit card when you’re 18. However, in India, it is still very difficult for students to get a credit card from a bank.
Minors can also have a credit card if their parents allow them to have an additional card. It is also essential to teach young people how to maintain an excellent credit history.
Another important factor is teaching teenagers the difference between credit and debit cards. Every time a parent swipes a card, the children attentively monitor the process.
As a result, years before young people start using debit or credit cards, they know the difference between the two.
For example, it will be essential to verify that their credit card applications and educational, personal, consumer, or housing loans are approved easily, on favorable terms.
Other key factors
Meanwhile, young people need to not harbor any misconceptions about credit that can cost money and credit scores. This is especially advantageous for monthly or recurring payments. Of course, these options only work if there is enough money in their bank account to pay the bills on time.
Accordingly, it is imperative to maintain budgetary discipline by paying all bills on time.
Likewise, young people should limit their spending or make sure they limit their credit card use to the point where they can clear their balance each month. Forwarding any balance will incur high-interest charges.
Additionally, a high debt balance can affect your credit score. A simple trick is to use their credit card like a debit card, just make a purchase and they can comfortably pay. It’s best to keep your usage rate at 30% or less, so it’s easier to pay your bills on time each month.
Another aspect is to avoid making multiple loan applications in a row. Whenever a person applies for a new loan or a new credit card, the lender submits a request for a credit assessment to CIBIL, known as a “company inquiry”.
Many thorough investigations in a short time make lenders reluctant to approve the loan or card because the applicant shows credit greed.
Therefore, young people should only apply for a credit card or loan from a lending company or bank at a time when the eligibility criteria are easier to meet. Lifelong fiscal discipline that leads to a high credit rating then pays dividends in the short and long term.