Everyone needs credit. It's a necessary part of daily
life.
Whether you're renting an apartment, buying a car,
renting a car, want to get a cell phone or are ready to buy at an
online auction, having credit in your name is part of the approval
process.
So, how does one go about establishing credit? Here's
what Steve Bucci, the president of Consumer Credit Counseling Services
of Southern New England suggests.
Open a bank account. This will not appear on your
credit report, but bank account numbers are often requested on credit
applications.
Apply for a credit card. To avoid being denied credit,
apply only for those cards whose requirements you are likely to
meet. Department store or gas credit cards are usually easier to
obtain than a bank-issued card with a Visa or MasterCard logo.
Before applying, make sure the creditor reports account
activity to the credit bureaus. As the purpose of obtaining the
card is to establish credit, you want to choose a card that will
help you do that. If you want to get a Visa or MasterCard, ask at
the bank or credit union at which you have your account.
Charge purchases and make payments on time. Use your
credit card for purchases and make sure to pay the balance on time.
Once you have used the card responsibly for three months, you may
want to apply for a Visa, MasterCard, American Express or Discover.
These cards will allow you more flexibility in charging purchases,
but will also give you more opportunity to get in trouble.
Remember a $5,000 credit limit is not $5,000 in additional
income. It is only a different way to spend the money you already
have.
Create a spending plan. Before you use your credit
card, you will want to make sure that you are able to pay off the
balance on the items you plan to purchase. Write down all of your
expenses and your income and adjust your spending accordingly.
A secured card is an option. If you have trouble qualifying
for a credit card, you may opt to apply for a secured card. These
cards have credit limits based on a required deposit made by you
into a savings account. You use the card just as you would any other
credit card.
If denied credit, ask why. Ask any creditor that denies
you credit to give you the reasons you were denied. Reasons may
include income, employment or credit history. It is important to
find out why you are denied because frequent inquiries (applying
for credit) on your credit report can be viewed as a negative to
a potential creditor. If you are denied credit, you can request
a free copy of your credit report to see if there is erroneous data
on it, and have corrections made.
Just as important as a blueprint for establishing
credit are the things you don't want to do to jeopardize your credit
rating.
Don't overdraw your bank account. You will be charged
fees and you could damage a good reference.
Avoid missed or late payments to any creditor. That
is a sure way to damage your credit rating.
Don't let anyone else borrow your credit card, debit
card or in any way have access to your bank account. You are responsible
for any authorized use of your accounts.
Don't give your card number to anyone over the phone
or Internet unless you have initiated the transaction.
Avoid cash advances at all costs. They're expensive.
You'll pay an upfront fee of 2 to 4 percent on the amount you withdraw
and you'll be stuck paying a high interest rate, often in the high
teens or higher. And because there's no grace period on a cash advance,
the interest charges will begin to mount as soon as the money comes
outs of the ATM.
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