Need To Build My Credit, Or Do I?

J.D. is starting college this fall, and he wants to know Dave’s best advice for someone who hasn’t entered the financial world yet, and does he need a credit card to help build credit?

QUESTION: J.D. in Knoxville is starting college this fall, and he took Dave’s course for teenagers in high school. J.D. wants to know Dave’s best advice for someone who hasn’t entered the financial world yet, and does he need a credit card to help build credit? Dave tells J.D. he definitely doesn’t need a credit card.

ANSWER: The best way to become prosperous is to avoid debt. If you avoid debt, you won’t need a credit score. The wealthiest people don’t have a car payment, so you would save up and pay cash for a used car, then upgrade by saving and paying cash for better cars over time. You can buy a house and get a mortgage without a credit score. If you’ve never borrowed money and you have a job and have a good down payment, you can qualify for a home with a zero credit score.

You can’t qualify for a home with a medium credit score. You either need an excellent one, which means you borrowed a lot of money and paid it back early and often, or you have a zero score because you don’t borrow money. The math that goes into creating your credit score all has to do with how you’ve borrowed money and paid it back. A high credit score is not an indicator that you’re wealthy. It’s an indicator that you love banks. Use money as your measure of winning with money, not a credit score.

As far as what a college student should do, the answer is to always have a written plan for the money you do have. The second thing is to avoid debt. Stay away from the credit cards that pitch a free T-shirt or pizza to sign up. If you do those two things and work a little bit and save a little bit while you’re in school and graduate with no debt, then you’re way ahead of most people.