yakimushi

A little background: I'm 23 and I've never had a credit card. I recognize this as a good thing except that I just tried to get a wireless phone from Verizon and was denied. Not due to bad credit, but not having credit at all.

So my question, what is the best and fastest way to build a decent credit record? I don't want to use the damn card (I hate spending money I don't have) because I'm deathly worried about racking up huge bills I can't pay.

Any suggestions would be greatly appreciated. Thanks!

Yakk

Secured credit card. In the ask the loan officer thread, NoSoup gave some advice (click for a link to the post) that would probably be more accurate than anything I could say.

Basically, you put 500$ in a (low interest, ik) account, and they issue you a credit card with a 500$ limit. You still have to pay off your credit card like a normal one, but they aren't taking much of a risk (they have your cash, bwahahaha).

Apparently, you also want to use it at least a small amount? Know even less about that part of the "earning credit" mojo.

__________________
Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.

Rodney

The secured card will work. The easiest way to get credit is to go into debt and then pay it off. Creditors just don't know how to deal with customers who don't show up on the credit bureau radar at all. It scares them.

When I bought a house for the first time, the deal was nearly queered because I didn't have a credit history; I'd always paid with cash or a check. Even though I had down payment money in hand and a verified adequate income, the mortgage company got weird. I finally had to sign a paper testifying that the reason I didn't have a credit history was that I didn't believe in consumer debt. Then I got the loan.

WarWagon

Yep, regular, small payments on credit card for me. My first Visa card had a $1000 limit and was cosigned and linked to my parents savings, so if I couldn't pay up, the cash would come from their account and I'd never have any late payments. This was never an issue, though. As a first year college student, I've already got better credit than a lot of older adults I know.

Seer666

I built mine up by getting a card, then charging 50 bucks a month on it, and paying it off before it could rack up intreast.

__________________
Bad spellers of the world untie!!!

I am the one you warned me of

I seem to have misplaced the bullet with your name on it, but I have a whole box addressed to occupant.

irseg

Like the other people mentioned, I built up excellent credit by charging a few hundred bucks a month (utilities, meals, etc) and paying it all off.

Whatever you do, don't max out any cards! I have 3. Two of them are more or less unused (under $100/mo). I came to within $200 or so of maxing out my Amex Blue Cash by buying a used car on it (I wanted that cashback bonus!). I paid it in full 2 weeks later. Of course they had to report to the credit bureaus while it was maxed out, which caused my TransUnion score to go from 745 to 693.

yakimushi

Thanks for the tips folks, I appreciate it!

ibis

I've heard of people geting small loans from banks, waiting a few months, then paying them back (plus a little interest of course).

This might not be that bad of an idea since the interest rates are so low right now.

Hwed

Get a credit card. Use it for everything you buy, but don't spend more than you have. Pay it off in full at the end of each month. You will pay no fees and no interest, build credit, and if you get the right card, you can earn some pretty decent rewards.

For example, I've had a Citibank Drivers Edge card for several years. I've never paid a penny of interest, and I earn $500 each year toward the purchase of any new or used car. I send in a copy of the bill of sale, Citibank sends me a check for up to $2500.

You can't beat that with a stick.

NoSoup

Make sure that if you are using a credit card to build your credit, even if you pay it off in full each month, don't charge more than 50% of the limit. For example, if you have a card with a $1000 limit, don't charge more than $500.

The reason behind this is because it may damage your credit if you do so, the credit reporting agencies take a "snapshot" of your debts at some point during the month, and if your balace is near the limit, it will damage your score.

__________________
I have an aura of reliability and good judgement.

Just in case you were wondering...

Hwed

However, if you pay it off in full each month, the limit will quickly rise to some astronomical number that you couldn't possibly get near unless you planned to fake your death and leave the country.

dpezzo

NoSoup,

Thank you for the info on not maxing out. I had no idea that it will blemish. Well, of course now it makes perfect sense, though.

The question is, once you pay down the card, how long does it take (if it does at all) for your credit score to go back up?

I am sure there are other factors involved, but just curious as to rules of thumb and/or estimates.

NoSoup

Well, as the Credit Reporting Agencies don't particularily care to give out their formulas in calculating scores, all I can do for you is make an educated guestimate, so take it with a grain of salt...

The score will be most impacted during the month(s) that the balance is reported near the credit limit. After that, your score will increase (I would guess 50%-60% of the lost points) during the first month that the balance is reduced below 50% of the credit limit. This is, of course, that it hasn't been near the limit for much of an extended time. During the following 3-6 months your score will continue to increase (I would imagine 70-85% of the total points lost) Once you reach the one year mark, it should have a much lesser effect, and when you get to 3 years, it should have very, very little effect. However, a "shortcut" around all this waiting is simply to increase your balances so that the high balace is at a lower percent of the maximum limit. Be forewarned, though, that requesting an inquiry on your bureau (having someone take a look at your credit) as well as increasing your unsecured limits will ding your credit as well. I would recommend this to most anyone that has exceeded their limits on their credit cards, or gotten very close to their limits.

If you have any more questions, just ask

__________________
I have an aura of reliability and good judgement.

Just in case you were wondering...

THGL

If you go the credit card route, once you get one card you'll start getting offers out the waazoo for more cards. DO NOT GET THEM!

Too many open accounts has a negative impact on your score. Let's say you have 5 cards with a $2k limit on each and never use them. The credit agencies look at it like you have the ability to be $10,000 in debt at any given time and might be a higher risk than someone with just one card with $500 limit. (that was told to me by my mortgage lender).

__________________
"The truth is merely an excuse for lack of imagination." - Garak

Cynthetiq

I did a secured loan via the bank.

I saved $2000, and then borrowed $2000 from the bank. I took the money from the bank, and put that into an account that had a monthly debit to pay the loan off.

I paid it off in 6 months and paid a small premium to do so because of the interest, but it wasn't all that much.

I didn't pay attention to it except read each month that it was debited from my account, I did not manage it any more than that.

__________________
I don't care if you are black, white, purple, green, Chinese, Japanese, Korean, hippie, cop, bum, admin, user, English, Irish, French, Catholic, Protestant, Jewish, Buddhist, Muslim, indian, cowboy, tall, short, fat, skinny, emo, punk, mod, rocker, straight, gay, lesbian, jock, nerd, geek, Democrat, Republican, Libertarian, Independent, driver, pedestrian, or bicyclist, either you're an asshole or you're not.

mrblue

What a messed up world this is that banks can convince you to take out a loan, give it right back to them in another account, then pay back the original loan with interest and thank them for the pleasure.

Cynthetiq

I could have done the normal route which is to buy something on credit with high interest rate and then pay it off slowly, but since that did not follow my lifestyle of paying for everything with cash I had to find a different way.

The way I found worked for me. From that point on I slowly moved to credit and then paying that off every month. I don't carry any cash on me most of the time, if I do it's never more than $40.

__________________
I don't care if you are black, white, purple, green, Chinese, Japanese, Korean, hippie, cop, bum, admin, user, English, Irish, French, Catholic, Protestant, Jewish, Buddhist, Muslim, indian, cowboy, tall, short, fat, skinny, emo, punk, mod, rocker, straight, gay, lesbian, jock, nerd, geek, Democrat, Republican, Libertarian, Independent, driver, pedestrian, or bicyclist, either you're an asshole or you're not.

90degree

"Pay it off in full at the end of each month. You will pay no fees and no interest"


not true.. the interest on credit cards is compounded daily..


"Too many open accounts has a negative impact on your score."


NOt true... it is the ratio of used credit versus limit of credit... the magic # is 60%... you only want to use 60% of your available credit on each card ...

inferno360

Interesting advice from all, I'm also looking to build my credit because I've gotten my cell phone 6 months ago, but when they checked for my credit rating, they said I didn't have one, they gave me the phone anyways, kinda weird how yakimushi got denied off of having no credit rating. I convinced them since it isn't bad credit they have no reason to deny me of the phone, I also said that I have other choices in phone companies, that usually gets them going...

__________________
If it's stupid but it works, it's not stupid.