Say you just turned 18. What would be the best way to start off with good credit, and keep it that way?
Get a credit card, use it sparingly, pay it off immediately. This establishes you as someone who will pay off debts. Next step might be buying something on time. At 22, I made a purchase on time that I could have bought outright, I made a few payments, then paid it all off. Another gold star for me! By the time I was 27, I qualified for a mortgage and bought my first house. Now, many houses, cars, boats, and personal loans later, I have people begging me to borrow from them.
The most important thing is to ALWAYS pay your debts, and early, if you can. And don’t bounce checks.
Good for you for recognizing the importance of good credit - you shall do well!
Start a savings account in addition to your checking account (even if you only keep $50 in there) is invaluable.
Get a small credit card from college/university. Keep a small balance (less than 75% of your max) and keep using it. After 6-8 months you’ll have some credit.
You should probably start with some basic cards (VISA and Mastercard) then probably get a AMEX as well. You can’t be choosy since you don’t have any credit
If you’re young (and not making THAT much money) you might not be able to establish that much credit until you’re older (I work as a credit analyst at a cell phone company and decline most younger people).
A few pointers :
Don’t try to get all 3 cards all at the same time. The more “Hits” on your credit file, the worse things look.
Don’t bounce cheques. NSFs are a no-no on your credit file.
Make all your payments on time. If you miss a payment call the credit card company and tell them you made a payment a little late.
Credit hits take 1 year to clear your credit file. If I remember, collections against you take 5 years and bankruptcies and write-offs (called R9s) take 7 years. So if you screw with your credit now, you’ll be out of luck for a long time).
If you want to finance a car, your credit doesn’t have to be special. I got a $33K (CAN) car and my credit was in the low range (620-640 FICO score) so don’t worry too much. Anyone with a score less than 600 generally have something bad in their file. The range for credit is 300 (lowest I’ve seen is 388) up to 900.
If you want, you can also get your credit file (if you have one) at www.equifax.com (for canada it’s .ca).
I did what FCM suggested. Over here one of the banks offers a fantastic student credit card deal with no annual fee, and 55 days interest free. As soon as I found out about it, I applied and used it to buy things that I knew my parents would reimburse me for (eg. petrol for the family car, groceries), and stuff that I was planning to buy anyway and had the cash for. I linked the credit card to my internet bank account and pay the balance as soon as I get home.
My mother bought a couple of plane tickets and I wanted to put them on my credit card (and have her repay me) but my credit limit is only $1000.
Actually, bank accounts don’t appear on credit reports.
FCM’s advice is very good. Even better than paying off a debt immediately, though, is paying it off slowly and carefully. Say you take a trip and spend $1000. Your credit will be good if you pay off the $1000 right away, but it will be excellent if you send in $250 every month for four months. Creditors like to know that you are not only a good bet, but also that you will net them some cash.
Always, always, always pay at least the minimum within thirty days of the due date. If you miss the due date and have to pay a late fee, it will not affect your score unless you miss it for an entire 30-day cycle.
FTR, I am a loan processor and have seen thousands of credit reports.
Oops! Sorry, I thought this thread was about establishing credit in general.
Carry on…
Don’t get bad habits.
Which means, buy something. Put the card away. Have the cash in your savings account to pay the bill in full. If you want to make a few payments (to show you can handle it, as suggested by Kyla) fine.
Use the credit card SPARINGLY. Always have enough money available (if at all possible, there are emergencies - which do not include a trip to Cancun) to pay it off in full - whether you pay in full or want to have some cash on hand is up to you.
Don’t assume you will graduate from college, make $60k a year, and be able to pay off $30k in credit card debt you acquired in college quickly. It (almost) never works that way. You graduate from college, get a job for $32k a year, pay bookoo taxes, and have living expenses that cost you every penny of your take home pay, leaving that $30k hanging over your head for years.
(And if 27 sounds like old for a mortgage, I bought my first house shortly after turning 21 - it doesn’t take much of a history).
a buddy of mine is a minor league baseball player. he’s a heck of a ballplayer, but not always the brightest bulb in the pack. often, when he’d move between levels, or move between season and off-season, he’d completely forget to change his address with his credit card companies. needless to say, his credit suffered.
he asked me for advice, and all i could give him was “pay your bills on time from now on.” other than that, any advice on repairing credit?
Graduate from College.
Pay all your bills as soon as they come in the mail.
Join a credit union at work, and have an automatic deduction from your paycheck deposited.
Get a credit card from your credit union, at work.
Use it for all your regular expenses, and nothing else. Don’t spend money you don’t already have. Pay your entire bill every month.
Lots of people will send you pre-approved credit card applications. Throw these away, every time. Never get one, not ever, no matter how much they offer you in incentives.
When you get a good enough job to afford a new car, start six months before, with an automatic payroll deduction the size you think you can afford in car payment, and insurance, monthly. Learn to live with it. Then buy a car, and use your credit union, or a significantly better offer from another lender, to finance it. Pay by automatic deduction. As soon as your car is paid for, change the payment to go into savings, since you are already used to living on the ballance of your earnings. Drive this car until the savings you just used will pay for the next car. Never buy another car for credit again.
Start an IRA. Do it tomorrow! No, wait; screw that, do it TODAY. Buy bonds, or good long-term stock shares, and if you can, get DRIP shares. (Dividend reinvestment program) Pick companies you are pretty sure will still be doing what they do in fifty years. You don’t need high flyers, you need floaters.
In a very short time you will have superlative credit. But, you won’t need it. You will have learned how to live within your means, and with that skill, you will always have greater and greater means, and won’t need to borrow money. Stuff you borrow to buy costs you more. Twice as much, if you borrow for a few years, and three times as much if you borrow for decades. If you save first, and then buy, it cost you less than the price tag, because compound interest is on your side.
So, in short (to late!) the best way to have good credit is to avoid needing any credit at all.
Tris.
“You can’t always get what you want.” ~ M. Jagger/K. Richards ~
I don’t know what my credit rating is, but once I tried to sign up to pay off a large item in installments, and they refused me. This surprised me, as I had never been in debt, my credit card was always in the black, and my bank account was quite full.
But I think it was as Kyla said - my history suggested that I’d pay everything off in time and they’d not get their ridiculously high interest.