Category — Credit

The best way to build up good credit is to use credit cards. If you’re in college you should be receiving regular offers for cards. Get a couple of them.

This is the key to properly using credit cards. First off you’re not using them to borrow money and you’re not using them to buy things you can’t afford.

You use them to make the purchases you were going to make anyway and then you pay them off in full every month. This does a number of things.

I’m sure most of you know someone who always is about a week behind with money. You know who I mean. They give you a check but ask you to hold it. Well with credit cards you get 25 days to pay (actually up to 55 if you make a purchase on the last day of the billing period). so this helps you spread things out a little more evenly.

The second thing is this will show up on your credit report as an open account that was always paid on time, a good thing. Another consideration is that how long you have had credit is part of how your credit rating is calculated. So the sooner you have an open credit line and the longer you have it open the better.

Periodically the issuers may offer you a higher limit to your cards. Take it. Part of your rating is based on what percentage of your available credit you’re using. As a rule of thumb never use more than half your available credit on any one card and try to keep your overall usage to less than 30%.

If you’re not in college and not getting credit card offers then things are a little more complicated. It’s possible you already have negative items on you credit reports.

Go to http://annualcreditreport.com and request a free credit report. There are three reporting agencies and each of them is required by law to give you a free report.

The reports will be complete but will not include a FICO number. They’ll try to get you to pay for the number. I wouldn’t bother. Look over your report and make sure everything is correct. If there are errors follow instructions to correct them. This is a very slow and lengthy process. Just make sure you’re heading in the right direction.

When you start looking for credit cards remember that store cards are actually the hardest to get. If you’ve already messed up your credit you might have to get a card that has a fee. Avoid this if you can but you need to start putting positive things on your report.

Good luck.

I once had an employee who wanted to buy my van from me. I said “OK but you’re going to have to get someone to finance it for you”. He said “No problem. I’ve got great credit. I always pay for everything with cash”. Did I mention he was an idiot?

Having a good credit rating is first of all based on your history of using credit. That is you say I’ll make this payment every month and then you do. If you never use credit then there is no means of appraising how responsible you’re going to be.

“But why do I need credit”? Well one reason is that for most people the only way they are able to buy a home is with a mortgage. When you apply for a mortgage your costs are going to be much higher if you don’t have good credit. In fact you might not be able to get a mortgage at all.

But there is more to this. Many organizations have started to use Credit Reports as part of their screening process. So if you don’t have good credit you might not be able to rent the apartment you want or get the job you apply for.

This is serious stuff.

You really have to approach this from two directions; don’t do bad things and do do good things.

Here’s what I mean. A number of people who have never had a loan or a credit card already have Bad credit. How did this happen? There are many financial situations that won’t show up on your credit report unless you don’t make payments or are late in doing so.

A phone bill, a utility bill, rent, etc are not reported on your credit history showing that you made timely payments. They will show up if you’re delinquent in paying or if your account was turned over to a collection agency. These are the bad things you need to avoid.

But not doing bad is not enough. You have to have positive things on your credit report also.