Money Moments of Truth Blog Series: Week 2

Establishing Credit Early

The Importance of Establishing Credit Early

By Larry Magee | Senior Vice President, Employment Manager

Welcome to Week Two of our “Money Moments of Truth” blog series. Sandy Spring Bank is celebrating Financial Literacy Month this April by taking you on a journey through various stages in life, and highlighting a few healthy financial behaviors along the way. Last week, we talked about the importance of teaching kids about money from an early age. This week, we’re focusing on why and how teens can establish good credit.

As a teen growing up in a small town on Maryland’s Eastern Shore, I had limited financial literacy knowledge and no pre-established credit at the age of 21. Shortly after graduating from college, I was offered my first full-time job at JC Penney, so I started looking for a loan to buy a used car. Since I had no credit history, I was turned down for the loan. This was a humbling experience for me, because until then, I had never realized the importance of having credit. I knew I needed to begin establishing a credit history right away, but I didn’t know how, if no one would give me a shot.

Shortly after I experienced this “Money Moment of Truth,” a friend encouraged me to apply for a teller position at a local bank. In an effort to try something new and learn more about finance, I decided to pursue the opportunity. As an employee, I was also hopeful that I would have a better time qualifying for a loan. After working at the bank for several months, I applied, and was approved, for a $500 loan. I was finally on my way to establishing credit and a financial history.

Although this was indeed my first loan, I understood the importance of paying the money back—and paying it back on time. The president of the bank, who was also my boss, reminded me frequently that how I paid back this first loan could affect my ability to get other loans later in life, including a mortgage. Therefore, I paid close attention to the fine print, and I kept myself on a careful budget to ensure that I never missed a payment.

Parents can help their teens begin to establish good credit, which can have lifelong benefits. Here are a few tips:

  • Look to their future – While they may seem young—and you may be unsure of their preparedness for a credit card—remember that someday they will want a car or home loan, and they’ll need good credit in order to do so.
  • Open a low-limit credit card with them – Once they begin driving, have them charge their gas to this credit card. Work with them to pay the full balance each month, and use this as an opportunity to explain how credit is built.
  • Set a budget, and stick to it – Help your teen understand their credit limits and what they can afford. Show them how to keep careful track of their spending, to ensure they stay on track.

The experience of being turned down for a loan taught me a lot about the importance of planning for my financial future. Set up the teen in your life for a bright financial future by helping them to build a solid foundation early.


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