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You’ve landed the right job, you’re earning good money and your career is poised to take off. When everything is lining up in your professional life, it’s natural – and smart – to think about financial planning and the future.
While you’re working toward building an emergency fund, saving for a down payment on a house or car and setting aside something for retirement, don’t overlook another important aspect of financial planning – looking after your credit. Even young professionals who have a grasp on other aspects of their finances may be unsure how credit fits into the mix.
Generally, people starting out in their careers have one of two experiences with credit: they’ve either never used it at all, or over used it (in the form of credit cards or student loans) to the extent that they’re already deeply in debt. In either scenario, it can be difficult to know what you need to do to monitor your credit.
If you’re a credit novice, congratulations! Your clean slate means you have a great opportunity to start out on the right foot. Your initial steps toward credit management should include:
* Obtain your credit report and familiarize yourself with what’s on it.
* Educate yourself on how a credit score is calculated and what factors influence your score. These include: payment history for bills in your name, how much you owe, the length of your credit history and the variety of types of credit you use. Since you’re a credit beginner, you’ll need to start building a credit history.
* Start making small, judicious uses of credit. For example, you may choose to obtain a credit card and use it to make a modest purchase of a piece of technology or an appliance. Pay off the balance immediately. Or, if you need a new vehicle, an auto loan can help you build your credit history.
* Get into the habit of monitoring your credit regularly with a product like CreditReport.com, which offers its members valuable tools to help manage their credit for a monthly fee.
If you already have some credit history, the beginning of your career is a great time to review it and take steps to better manage your credit. Your regular tasks should include:
* Reviewing your credit history to get an idea of what you’ve done right so far, and what you need to improve.
* Learning what factors influence your credit score in both positive and negative ways. For example, paying down the balance on credit cards can improve your utilization ratio.
* Eliminating credit card debt and making responsible use of other types of credit, such as an auto loan or home mortgage.
The early days of your career can be a busy with a lot of adjustments, but it’s also a ripe opportunity to plan for your financial future. Learning the benefits of monitoring your credit and seeing how it fits into your overall financial well-being is an important aspect to grasp early on.