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Building credit: What adulting really looks like

Fourth-year student and 22-year-old William McDonald plans to buy a home in Old Town upon graduating from the University of Maine in May. Despite a monthly mortgage payment of nearly $800, McDonald said, “The hardest part of buying a home is the down payment. Because you have to prove that you have the ability to pay a mortgage.” Because of his credit score and his credit history, McDonald is able to prove his ability to pay that mortgage.

“When I was 18, I went to my local bank, and I got a secured credit card. And basically secured credit cards teach you to never spend more than you have or have the ability to pay back,” McDonald said.

According to Jacob Lunduski, Director of Community Outreach at Credit Card Insider a secured credit card can report payment history to credit bureaus and is a good option for young people — especially students — to build credit.

“Secure credit cards, like any credit cards, can report payment history to credit bureaus. As long as the card is used responsibly and paid on time, this process will help build credit, since the on-time payments will be reported to credit bureaus. […] Unlike most credit cards, a secured card requires a security deposit in case the cardholder doesn’t pay the bill,” Lunduski wrote.

In their haste to establish a good credit score, many students often fall prey to things like predatory lending or credit cards with high interest rates. While credit cards often have a bad reputation, the fiscal responsibility of the cardholder allows individuals to have something to show for themselves when they apply for other credit cards and important loans.

“If you get a credit card, it’s easy to get into debt by spending more money than you have to pay off the bill. When you carry this debt month to month, the credit card issuer charges extra money as interest,” Lunduski wrote. Since interest is how the majority of credit card companies make most of their money, fees can be avoided with full and prompt payments.

The problem with building credit for many college students is that they simply have not started to do so. Certainly, student loans provide an opportunity for students to at least establish or develop some form of credit upon graduating from an institution of higher education. But the ideal scenario for a student is one in which they already have established credit either before or during their first year of college.

“The first step [to establish good credit] is to learn about how credit reporting and credit scores work. If a credit card is not for you, there are other options for building good credit, like credit builder loans,” Lunduski wrote.

Among the many fiscal responsibility resources for students at UMaine is SALT — a free financial literacy service and debt management program provided by American Student Assistance. UMaine students can enroll in the program for free by visiting SALT’s website. Credit Card Insider is a national consumer and credit education company and has comprehensive guides to building credit and managing debt on its website.

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