Jess learns how to build a good credit history—the hard way.

$5,000 due and $40 in the account. Now what?

Jess sat staring out the window as six of her closest friends left on a road trip.

She had made her choices. In fact, a bunch of bad choices.

That's what landed her on the couch eating ramen instead of taking a weekend trip to Chicago with the girls.

Jess' bad decisions came in the form of a small rectangle of plastic she received just after she turned 18.

She had swiped it a few too many times. She was facing credit card bills totaling $5,000.

With only $40 in her checking account, Jess was broke!

Valiant effort

Credit card offers will keep pouring in.

Tempting credit card offers kept pouring in. Jess didn't know what to do, and didn't think she could ask her parents for help.

Her friends suggested she speak with a school financial aid counselor.

The counselor helped Jess take out a student loan for just under the amount of the debt, at a low interest rate.

Since Jess was a college junior, she could defer payment until after she graduates. That would leave her plenty of time to save up and pay it off, right?

For the next six months, Jess worked non-stop at three jobs. She brought in larger sums of money than she had ever imagined.

At first she saved half of every paycheck from one job, and the whole check from another.

She used the tips from her third job as a waitress for her day-to-day spending money.

As your credit limit goes up, so do temptations.

On the slippery slope, again

Roughly calculating that she was making enough money to pay back her debt, Jess let her spending habits take over again.

She carelessly spent most of her earnings on things she thought she "needed". Like that winter trip to Florida to watch her school play in the Outback Bowl.

The credit card companies were happy. They had been paid off! They had no idea that Jess was using loan money to pay them.

Jess' credit report showed the credit card companies that Jess was able to spend large amounts and pay them off.

New laws protect you

A few hundred here and a few hundred there, and soon she was in deeper than her original debt. And now there was no loan money left to pay it back with.

She was now $8,000 in debt with no way to get another loan!

It's getting messy

Sometimes it takes drastic action to stop the wave.

Jess finally asked her parents for help. To her surprise, they refused to bail her out!

Jess had one source of money left. The college money her parents had saved for her.

Rather than declare bankruptcy or default on her debt, Jess used that last source of money to pay off the $8,000 credit card debt.

She then took out another loan to pay for her last year of schooling. What a mess!

Feeling disowned by her parents, Jess was confused when her family invited her home for dinner the next week.

She was chatting with her brothers and enjoying her favorite meal when her father brought out a large garbage can. He handed Jess some scissors.

That evening's entertainment was watching Jess cut up her credit cards...every last one of them!

Tough choices

Jess was lucky that:

• She was able to take out a loan with deferred payments and interest;
• Her parents had saved up $8,000 for her last year of school;
• She could use the deferred loan and the college savings to make prompt payments on her credit card bills.

Many people don't have those choices. Many people would either have to either skip payments on their credit card bills, or declare bankruptcy.

Either choice makes it hard to get credit cards and loans in the future.

Jess has peace from paying her credit card balance in full, every month.

Protect your credit rating

Loans and other credit services are important. Your millionaire mom (...right) may insist that you, the poor high school student, buy your own car, or even pay your own tuition!

Large purchases like that are a headache if your credit report is tainted with bankruptcy or non-payment.

Educate yourself before you even open up a credit card account. If something is telling you it is free money or fast cash, stop! Find out:

• Why you're suddenly getting credit card offers;
• How interest rates work;
• How to get ready for credit.

Get a free copy of your credit report!

When you decide you're ready for credit, ask your credit union if they offer credit cards. Take advantage of the history you've already built with your share draft and savings accounts.

Then, when you get your first credit card, start slowly. Use it to make a small purchase and put money aside to pay the bill in full when it arrives.

Plan future purchases in the same way: pay the balance in full each month. This way you'll have immediate peace of mind: enjoying the convenience of a credit card and avoiding unnecessary finance charges.

Long-term benefits are that you'll be building a good credit history. You'll be in good shape when you decide you're ready to take out a loan for a car or other large purchases.

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