Can I build good credit by using my debit card a lot and not going negative, or do I actually need a credit card to make monthly payments off of?
I don’t think you’re going to get any credit “rating” just form your debit card.
If you always have the cash, I’d get a credit card and pay it off in full every month… you’ve got nothing to lose.
Loans are other good ways, but I understand if your hesistant getting a loan and paying intrest if you don’t have too.
You basically have to have a “history” of good “credit”. Your not getting/using “credit” by getting at your own money in your own bank acct. You have to use someone elses.
I’ve always had the money available for the last 2 years or so, but coming up shortly here I am going to be a college student… and likely a poor one at that.
I suggest that you obtain a credit card, maintain a good schedule of prompt payment and then carry a balance on it (i. e. don’t pay it off in full) for a couple of months. This will demonstrate to the credit card company that you are a good credit risk and that you can carry debt and pay it off.
I had a credit card for with a credit limit of $1300. I paid it off in full every month. right after I moved in to a new house I put $1000 on it and went for two months paying the minumum amount. The next month I paid it off in full. Right after that they raised my limit to $2500.
Getting the first company to take a chance on you is sometimes the hardest. If you have no credit at all it may be tough to obtain a Visa or MC with any decent limit. Many department stores will give you a card (although at a high interest rate). Co-signers are a good option for someone just starting out. IF a co-signer is not an option I have made exceptions for someone that has had a deposit relationship with me and shows a consistent savings pattern over 6 months or so.
The debit card is not establishing any credit on your profile, however many financial institutions only give them out to people with “good” credit, or an established account with them.
I would suggest you talk to the same bank (BTW bank is a 4-letter word) or credit union 
that gave you the debit card.
Related topic, once you get credit keep it clean, it can cost you big time on future loans if you have a “colorful” credit history. “A” credit will get you a rate of 7%, or better, on a mortgage “C” or “D” credit will get you a rate of 13% on a mortgage. On an $80,000 mortgage this will cost you an extra $127,000 over the 30 year term. :eek:
Once your in college, everyone will be falling all over themselves offering you credit. Pick out a credit card with NO annual fee, a low interest rate and, if possible, one that gives you benefits (cash back, points towards a product that you will use them for or something like that). Then charge a moderate amount every month and pay it off immediately most of the time, except for a couple of months in which you carry a balance and then pay the balance off (as previously mentioned). After you’ve done that, go back to paying it off every month, until just before you need to get a loan (car loan, mortgage, etc.) and then carry a low balance for a month or two beforehand.
If you DO have credit problems and you want to buy a house, this is actually a GREAT way to improve your credit, despite the higher-interest rate. Sure, you’ll pay a hefty amount in interest the first couple of years, but assuming you keep yourself out of trouble, you’ll be a homeowner with an excellent two-to-three-years of credit, and you should have very, very little problem refinancing at the prevailing rate.
But, as Kamikazee says, DON’T screw yourself and end up paying 13% for the whole 30 years!
I don’t think you have to run a balance and pay interest on your credit cards to get good credit and I would recommend you don’t try too. In the course of your life you will have ample time to pay interest to the credit card companies but don’t do it to establish credit. Do it because you don’t want to pay for a month or two.
I have not seen anything on my credit report about debit cards so I would say you need a credit card for that.
I was startled to find out that, when buying a house, one doesn’t really need any kind of credit history at all (FHA, at least)! So, if you have no credit, and you go this route, you will find yourself building a credit history pronto! Also, Sears has been the best for just starting out, in my experience…go in and get something that you need and ask the clerk to give you a credit app to use to purchase it…they will let you know immediately, or in a few days! These are ways to start it…i don’t know any good ways to repair it other than time! DO NOT USE SECURED CARDS…the hidden charges and fees that they come up with are little better than the old shell game, IMHO.
I’ve found that carrying a balance will get you a better rating than paying in full every month. After all, no balance = no money for the issuing company. They tend not to like that. That said, you won’t get a bad rating if you pay in full, you’ll jusy get a better one if you carry a balance at least some of the time (the credit rating formula is only slightly less complicated than Unified Field Theory).
And Chekmate, just some friendly advice from someone who’s made the mistake. Be very careful using your card as a poor college student. It is way too easy to run up a debt that you can’t pay, especially if you are used to having money. Took me 5 years after college to get my rating back to where I could get a decent mortgage rate.
This is a myth. Your credit ‘rating’ is affected by 6 factors: on time payment history, amount owed, available credit, length of credit history, new credit accounts, and types of credit in use. Your credit report does not reflect whether or not you pay your entire balance monthly. For example, if your payment is due on the 15th but the CC company reports to the credit bureaus on the 10th, your report will show a balance even though you pay in full monthly. Your credit score (also known as a ‘FICO score’ for the Fair Issac Company which developed the algorithm) reduces all this information to a number between 300 and 800, with higher being better. A small outstanding balance should not hurt the score significantly, but it CAN NOT help. The score reflects only whether you pay on time, not whether you pay in full. A $500 CC balance for which you pay the minimum on time counts exactly the same as a $500 balance which you pay on time, in full.
Having said that, a large outstanding CC balance or high CC limit (available credit) will hurt your FICO score. The real keys to good credit are to pay on time and keep your debt-to-income ratio low.
Ditto to the Doctor,
another myth is that it will help you to close out credit card accounts that you don’t use anymore. This will reduce the amount of available credit and actualy reduce your FICO score. The algorithm is very strange in that added “weight” is given to amount of available credit on a revolving basis.
So I guess the message here is open lots of charge cards, don’t use them and drive your FICO score through the roof:)
Then every Tom, Dick and Citibank will be soliciting your business.