The Importance of Building Good Credit

It is not a topic that is usually discussed in school, nor one that necessarily generates an attractive conversation among young people. But knowing about the subject is necessary, since the reality in which we live forces us to have it.

It’s about credit. Building and maintaining it will be the key to achieving success in economic life, since, according to economist and professor at the University of Puerto Rico (UPR), Marta Quiñones, our society “forces us to have credit.”

“Personal bonds should be taught from the middle school level,” said the professor of finance and economics at the Arecibo campus of the Pontifical Catholic University of Puerto Rico (PUCPR), Juan Carlos Quiles Moreno.

However, Why is it so important to start building good credit? In simple terms, to make loans. Without good credit, it is difficult or almost impossible to acquire a vehicle or a house, since banks or cooperatives are more reluctant to lend large sums of money to people who cannot demonstrate their financial responsibility, Quiñones explained.

So what steps should I take before I start building my credit? Save, save, save. Or, in the words of Dr. Quiñones, adopt “the pot policy.”

“You have to say ‘I’m not going to spend on this, and I’m going to spend on this’ (and) ‘I’m going to deprive myself of this,’” he said. “Savings are important, because savings allow you to have that protection,” she said.

“The most important thing for young people is to start saving,” added Quiles Moreno.

This, however, is not done blindly. The first step is create a budget and not spend all the profits earned. Both economists agreed that 10% of the monthly salary should be saved, money that could be available for an emergency. This emergency fund should have enough money to cover necessary survival expenses for three to six months. Therefore, income must exceed expenses.

“Expenses like ‘I want to travel’ or ‘I want to go to a concert’; “That is not an emergency,” warned Quiles Moreno.

“(Young people who apply for a loan) have to learn to balance all the finances they have. They have to make a plan and you should never have everything (the check) spent,” Quiñones said.

To start building credit, experts recommended applying for a credit card. Then, you can also continue building with the purchase of a car.

It is not limited to that, they reiterated, but once the credit card is requested, responsibility and consistency with payments must be shown. Failing to make these payments could prove disastrous for an individual’s fiscal health.

“Anyone who has the income to be able to pay it must have a credit card,” repeated Quiles Moreno, who predicted that this way, when the person retires, they will do so comfortably.

“You have to build your credit little by little with your credit card or a car loan to then reflect that you can really pay and are responsible for paying,” commented Quiñones.