8 Surefire Ways to Establish Credit!
You have graduated high school or college and are now ready to become part of the American economy. You are excited to begin this new chapter in your life. You have finally escaped the bondage of your parents and can now make your own decisions, including the financial ones – what car to buy, what apartment to rent, where to shop for clothes, and where to vacation.
Unfortunately, you may soon find out that you don’t know as much as you would like about personal finances and how to successfully navigate the world of credit or even understand its importance. This stuff is not taught in schools so unless you are lucky enough to have parents that taught you, you may be scratching your head right about now wondering where to start.
The pendulum has certainly shifted when it comes to credit. Long gone are the days where you could get a credit card at the drop of a hat. Even with a financial background, I didn’t realize how difficult it was for a young professional to get a credit card. My daughter had trouble getting a personal card even after working for a large company for a few years and where she had a business credit card. She was finally able to start building credit after her boyfriend (now hubby) added her as a signer on his credit card.
You may be shocked when you find out that the only way to get credit is to have credit. If you have never had a loan or credit card in your name, you don’t have credit and you will pay more for everything, whether it’s a car, a house, furniture, or electronics.
Below is some great advice from a friend who has been in the business of granting loans and nice enough to give me some great advice to pass on to you.
Why is credit important?
- Housing – Whether you rent or buy, you will need a good credit score. Some opportunities won’t even present themselves, and if they do, you will be in competition with others who do have a good credit score.
- Employment – More and more companies and doing extensive credit checks, including running consumer credit reports. Why would a Fortune 500 company want someone you has no credit history or a poor one? It again makes you less attractive and puts you at the bottom if you have competition.
- Automobiles – Almost anyone can get a car loan. You will pay from 0% to 24% depending on your credit score. Your credit score will also determine the model car, new or used, and the required down payment. Car loans are easy to get since the car is the collateral so if you default, the bank will just repossess the car. Therefore, they are not as helpful as you would expect. An unsecured loan or credit card goes much further in helping you gain some credit points.
- Auto Insurance – Bad or no credit, you pay more
Convinced that it’s important? Good! Read on . . .
How to establish a good credit score:
- Put all of your utilities (gas, electric, water and cable) in your name. These companies will not report to a credit bureau but you will start to form a history of on time payments which you can later show your bank to reduce any deposit you need to make the next time you have to have utilities turned on.
- Find a local bank and open a checking and savings account. Never ever have an overdraft! Maintaining a solid looking account is a tool that you will use when you talk to your banker.
- Talk to a bank representative either when you open your accounts or after having done so. Make an appointment to talk to the Vice President or someone who can make decisions. Introduce yourself and explain you would like their help in establishing credit.
- Your Banker will probably suggest you get a secured credit card. It is simply tied to your savings account. If you have $200 in savings, you can get a card with a $200 credit limit. Use this card to then pay for items you are going to buy anyway such as food, gas, utilities, etc. Don’t buy anything that you don’t need. Remember, the only reason that you are using this credit card is to establish credit so don’t view it as a way to over spend and live beyond your means. Never let your balance get above 30% of the credit limit and pay it off each month. You must make every payment, every month.
- Go online and see which banks offer a student credit card. There are several including Wells Fargo and Bank of America. Apply after reviewing the conditions. If you are turned down, that’s okay, but DO NOT apply for any other cards!
- A great way to establish credit it by putting money into your savings account at your local bank and then asking for a loan using your savings as collateral. Let’s say that you deposit $1,000 and then ask for a loan for $1,000. As soon as they write you the loan check for the $1,000, go to another local bank and deposit that same amount and ask for a loan for the $1,000 from the second bank. You now have $1,000 that you can now use to begin paying off the loans. It will cost you some but you will then have two different banks that will be reporting to the Credit Bureaus which will help to improve or create a credit score for you.
- Apply for store credit cards. J.C Penny and Walmart are two of the easiest. Again, only buy what you need such as food, clothes, housewares, etc. Pay the balance off each month. This will teach you how to live within your means but also help you to establish credit.
- The good news is after seven month of doing all of the above, you will have a good credit score. Now to get it even higher, go to both banks after a year and ask for unsecured credit cards. Show them all of your timely payments on your credit cards, loan and utilities. Be prepared to explain why you deserve to be trusted with their money.
Some Important Points to Note:
- Every time that you request a credit card or try to get a loan, it creates an “inquiry” into your credit and each inquiry lowers your score by 4 points. You eventually recoup these points but too many inquiries before you apply for a loan may be enough to reduce your score down to an unacceptable score.
- Credit information is not reported to the credit bureaus until after six months so don’t pay things off too early.
- When it comes time to apply for a loan for a major purchase such as a house, the lending institution will be looking for a minimum of three unsecured revolving credit cards. The higher the credit limit, the better.
Remember, this is just a short overview and you are not alone. We all started out with no credit. Your biggest opportunity is to learn to use credit and not let it use you! Best of luck!
My Best Always,
To receive a free copy of Kim’s e-book entitled, Listen to Yourself, to find your path to Wealth, Success & Happiness, click here to go to https://www.createtotalwealth.com/listentoyourselfoptin
About the Author
Kimberly Adams is a Business and Wealth Coach, Speaker and Author. She has the unique combination of having spent decades in both the tax and financial world as well as decades devoted to personal growth and transformation with many certifications in coaching, speaking and energy healing