Step-by-step explanation:
Establishing credit is essential for young adults, as it involves supporting their financial needs in the long run.
Reason 1: Establishing credit reflects a borrower's creditworthiness.
When you apply for a credit card, acquire a vehicle through financing, and even renting an apartment or buying a home all involves the creditors looking at the timeliness of your payments. Credit cards or any type of loans are forms of debt (liabilities). Creditors are also in the business of making money. Thus, they want to make sure that they are loaning their funds to a trustworthy borrower.
The creditors try to determine whether you are only making minimum payments on your credit card, or if you're paying your debt in full by the due date. All of these factors reflect on your responsible use of finances and creditworthiness, which are the basis of your credit score as a borrower or debtor. If your're making your payments on time and are reasonably paying for your debt, then you're able to build up your credit history. Hence, the creditors will see you in a positive light the next time you apply for a loan. The higher your credit score, the lower your interest rates will be.
Reason 2: Employers run credit reports on job applicants.
Creditworthiness as a reflection of an individual's financial responsibility also has a positive bearing on how an employer views you as a prospective employee. Employers want to hire trustworthy and reliable individuals. Thus, financial responsibility is highly relevant, especially when you're applying for positions that involve handling money or finances as a part of your job.