What Do You Need A Credit Score For?
Unfortunately you need at least a decent credit score to obtain a mortgage, sign phone contracts, and even rent apartments. According to NerdWallet there are ways around having a bad or no credit. These include reference letters, paying more upfront, or finding individual renters. Regardless having little or no credit will severely limit options at the start of your life. This is why you must build a good credit score.
Luckily I have used credit cards and paid utilities when I was young to build credit and have avoided these issues. My little brother was not so lucky. He rented an apartment at college with some roommates while his college was only 20 minutes away. I at first said this was not the best financial idea. However he moved out and went to another landlord. Originally he had issues setting up this lease. It was later that I learned the main reason is that he had no recent credit history. Suddenly I completely changed my mind of whether renting was a good idea for him. It was far better for him to worry about credit when a very viable alternative of living with his family was available than to go out looking for an apartment near his job and be turned down from every place near there. I have personal experience that when you are looking for a job the thought of getting an apartment usually comes second.
It is best to build a good credit score while young. Eighteen would be the best time. Even starting a few years later evidently limits possibilities.
Later Benefits Of Credit Score
While credit is very important to quickly move around while young it is also imperative to have a good credit score when you want a house. While I do not recommend buying a house with only 3.5% down, having a good credit score would make turning you down from home mortgages one of the worst mistakes a lender could make. Furthermore having good credit could give you the optimal interest rate on the property. This will allow you to buy better houses and real estate for cheaper. For instance having a credit score above 740 will give you the optimal interest rate. I have heard that this needs to be >760 from other sources, but the conclusion is the same. Aim for as high of a credit score as possible. Having a lower credit score will not necessarily deny you the house though.
Getting A Credit Card
This is one of the most infamous ways to build your credit. Dave Ramsey would never approve, but I do recommend getting a credit card the sooner the better. Don’t get me wrong I hate the very idea of having a credit card at all and almost feel dirty having one.
I had an old credit card and built up excellent credit. I recently closed the account thinking I did not need it anymore. Apparently I was wrong. My TransUnion score dropped almost 70 points in one day. It’s still a good score, but still that was in only one day. I decided to obtain a new card then. It is unlikely this will affect any choices I have in real estate, buying a house, or starting a business. With adamance, discipline, and disdain to debt I know I will not have this credit card as anything more than a depressing, but necessary tool in which will help ensure my family’s future. Luckily having a credit card does not mean you have to have credit card debt.
In these cases you could obtain a credit card in which you only use literally once every two months for some small purchase. Then pay the debt as quickly as possible. Another option is to use a secured credit card, not a prepaid credit card. These I recommend only if you need to build up poor or no credit. Since they usually have fees. However they are “secured” there is a deposit in which can offset any purchases required. Otherwise a regular credit card with no annual fee would be better.
Other Ways To Build Credit
Luckily there are other ways to build credit across all credit scores. Unfortunately not as many as you think. Rental history is not one of them. According to US News rental payment history plays little if any role on your credit score. NerdWallet states that these appear primarily on Rental Kharma and RentTrack.
However there are still credit-building loans. These are usually offered by smaller banks, but they offer small loans which require only small payments. You can also obtain co-signers if completely necessary, but that is not financial independence.
You’re right it sucks to build a good credit score. If you want to move on out in the world, start investing in real estate, and buy a home credit is a necessary evil. No one is asking you to get into crippling debt or to sacrifice your financial freedom to do this. The discipline required to follow a plan to build credit is hard to develop, but if you develop this discipline, building credit is another step to forge your wealth.