At some point in your life, you are probably going to
need or want to purchase something that you cannot pay for
completely in cash up front. It may be a car or truck or boat or
house or appliances or anything that costs a lot of money.
Whatever it is, you are going to need credit; and to get
approved for credit, the seller is going to want to see your
credit report which is built off of your credit history. But
what if you have never bought anything on credit and have no
credit history? Well, for you, now is the time to start building
a credit history.
If you have no credit
history, you are going to need some assets to backup your buying
power. The seller needs to believe that you can afford to pay
for whatever it is that you are buying. The assurance that the
seller wants to see is either a good paying job (preferably one
that you have had for longer than one year... the longer the
better) or a cash down payment (the bigger the down payment the
happier the seller will be) or a co-signer (someone who agrees
to sign the loan with you and agrees to pay the loan if you fail
to pay the loan) or something similar (something of value to the
seller, not just you). The seller needs confidence that they
will eventually get paid and get paid on time.
Now, if you plan your
purchases far enough in advance, you could save up enough money
to pay for the item when you get ready for it or you can start
building your credit so that when you get ready for the item you
have a solid credit history to present and appease the seller.
Going with the second option, how should you start building a
credit history. Two huge tips for this feat: start small and
start easy.
You probably had plenty
of relatives tell you as you were growing up that you needed to
crawl before you could walk. This pretty much covers both of our
strategies: starting small and starting easy. One of the best
options for these are utility bills - your power bill, water
bill, telephone bill, cell phone bill, gas bill, garbage bill,
sewer bill... yes, there are a lot of utility bills out there
for someone paying for their own living expenses. Even if you
have someone else actually paying the bills, see if they will
put the bills in your name. Then, make sure that you pay these
bills on time or, even better, early. All of these bills and all
of these payments will begin to show up on your credit report
very soon after you start. It is extremely important to also
realize that any late payments or non-payments will be show up
on your credit report very soon as well.
Credit cards are another
small and easy way to start a credit history. The major credit
card companies (MasterCard, Visa, Discover, American Express)
all eagerly recruit new credit consumers. They usually just need
to see some source of revenue in order to issue a card. Granted,
the credit amount usually starts very small; but do not let that
discourage you. A three hundred dollar ($300) credit limit
sometimes reflects better on a person that a three million
dollar credit limit ($3,000,000).
If you find trouble
getting a new credit card with no history or perhaps even no
job, there are numerous credit cards offered for such
situations. They usually require a deposit to establish credit.
For instance, if you want $300 credit limit, you will have to
deposit with them $300 first. Don't worry. If you maintain your
account according to their terms (i.e. you do not exceed your
credit limit and you are not late on payments), then the credit
card company will usually be eager to increase your limit with
no additional deposit required. They will probably even pay you
back your deposit at some point. It might also be that once you
have established a short credit history with this type of credit
card, you apply for another card that does not require a
deposit. You could then cancel the first card and get your money
back.
While the major credit
card companies are great sources of credit history quick starts,
major retailers also offer cards that can make (or break) your
credit history. Retailers such as the Gap or Sears or Limited
all offer their own credit cards which are usually more lax in
leading requirements. Apply for a few of these, but keep in mind
not to overdo it. You only need a few cards, maybe one or two to
get you started. This also helps you manage your money, and
there are less statements to keep track of (you will usually get
monthly credit card statements telling you how much you have
charged and showing you how much you owe for the month).
While there are millions
of ways at starting credit, utility bills and credit cards are
easy and quick. I would definitely start with these. If you have
comments or suggestions, please email me; and I will update this
page accordingly). Good luck with your new credit history. It
can open many doors for you, but it also requires a great deal
of responsibility on your part. Make sure you know what you can
afford.
Other credit management pages:
•
Credit Management Home
•
I need to repair my
credit history.
•
I need to
dispute incorrect credit data.
•
What other
resources are out there for managing credit reports?
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