 How to build credit for the first time
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 Dear
Debt Adviser,
I am a recent college graduate and I am beginning
to understand how important credit is since I have left school.
I have never needed to borrow money or take loans out for school
and only recently opened a bank account.
I would like to build my credit
history and open some credit cards (unsecured). Can you give me
a blueprint for building my credit quickly and to a level where
I can open some credit cards and lease a car? Thanks in advance.
-- Scott
 Dear
Scott,
Although it is great that you have graduated
from college without any debt, the downside, as you have found out,
is that you have not established credit. The good news is that it
is much easier to establish credit than it is to pay off the thousands
of dollars in debt with which many college students will graduate.
Below is a blueprint for establishing
credit and using it wisely.
- Open a bank account.
This will not appear on your credit report, but bank account numbers
are often requested on credit applications. (You have completed
this step.)
- 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, we need to go over some of the things you
don't want to do.
- 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.
The
Debt Adviser, Steve Bucci, is the president of Money Management International
Financial Education Foundation and the author of Credit
Repair Kit for Dummies. Visit MMI
for additional debt advice or to ask a question of the Debt Adviser go to the "Ask the Experts", page
to ask a debt question. |
