How to Establish Credit and Keep Your Credit Score High
I remember being a teenager who just turned 18 and knew that I needed credit if I was going to be able to do anything in life. I was going to need to have my own credit to buy a car on my own, and eventually be able to buy a home. The only problem was that to get credit, you had to have credit. Most credit card companies will not give you credit if you didn’t already have a history of using credit.
So this is what I did:
I went to the bank and asked them for a secured credit card. This card is basically a bank account that holds a set amount ($300 in my case) that you pay them. Then when you charge something on it, if you fail to make a payment, they will take the money that you have set up in the account. If they end up doing that, your credit score will go down and no one will give you credit.
Your objective is to establish credit for yourself and raise your credit score so you will start receiving credit card applications in the mail. To do this you must buy something and let the balance on your secured card roll over for at least a month. I suggest that you buy something that you have wanted that will cost you about $100. The first month pay $25. The second pay another $25. The third pay another $25. Finally on the fourth month pay the remaining balance which will be above $25 because of the interest you have accrued over the last 3 months. By this time you should show yourself in good standing with the credit card companies and they will start sending you pre-approved applications. If this is not the case, buy something else that you need or want and continue to pay it off systematically. Sometimes it can take six months to a year to start receiving the applications.
When you do start receiving applications, make sure you pick one that does not charge an annual fee, and gives you something back for making purchases. For me, I like to get money back, or points towards things that I like to do. I even have a card that earns money towards college.
When you get your first unsecured card, go back to the bank and cancel the secured card. They will give you the balance from the account you set up to secure the card.
Most people only need one credit card. The cards that you get for department stores usually have a crazy interest rate. The only time I would sign up for one of those is if I was buying furniture and they offered to defer the interest for more than a year. If you do that, you need to make sure that you pay the balance before they start to tack on that interest.
What I would suggest that you do with your new unsecured card is to use it for gas for your car. Then pay it off every month. Do not let a balance grow on that card. If you do, do not let it stay there more than a couple of months. If you are going to use the card as money you don’t have, do not buy the item that you are thinking of putting on the card. This is how people get themselves into trouble with debt. Credit cards should only be an alternative to carrying cash. You should be able to pay off the card at any time. At least that is the way I look at it.
May 24th, 2007 at 5:59 am
You know, when I started my credit history, I took a store credit card and a secured credit card, as a financial consultant told me that otherwise I wouldn’t be able to get an unsecured card. I must say these cards cost me about more than the credit they gave to me… But my score grew dramatically.