General Question

seekingwolf's avatar

What are some good ways to start building credit?

Asked by seekingwolf (10387points) July 3rd, 2009

Okay so I’m 19 and I have no credit. I would like to start building it now and get a good score.

I thought about getting a credit card and use it only for 1–2 monthly payments that I already make and afford (NOTHING ELSE), and then pay it off RIGHT AWAY so I won’t get charged interest fees. However, I was told that because I have no credit I’ll have to pay high interest even if I pay early.

So what should I do? I also don’t really want to take out a loan as I don’t really need one at the moment since I have a job. I wish I could build credit through use of my debit card but that’s not possible. :(

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26 Answers

tadpole's avatar

firstly your age is going to go against you i would imagine unfortunately, and there’s not a lot you can do about that for a while….

make your first priority to stay out of debt and if you are in debt that’s your first task: pay it off….

always pay your credit card off in full within the interest free period…..do you not get one of these in the us?

i don’t know what to suggest beyond that….except that the more you earn as a job the better it will get, the more openings….and over time too your bank will learn to trust your behaviour and will improve your situation for you…i guess maybe as you’re starting out you have the opportunity to show them that you Can handle things….

certainly try not to get a loan if you really don’t need to…and if you do, pay it off in time, and maybe early if you are not penalized for doing so…

regular savings in a savings account?

hope these ideas might be of use…and good luck!!

MrItty's avatar

Whoever told you that is an idiot. Don’t take any more advice from that person. Pay your bill in full by the duedate, and you get no finance charges. For now, anyway. With the recent CARD legislation the President and Congress signed into law, the Grace Period may soon become a thing of the past.

Regardless, for now, it’s far more common for a grace period to exist than not. Read the terms of any card you apply for, and make sure it includes the grace period.

mirza's avatar

Apply for a student credit card. Most banks have something designed for people (most college students) with no credit. MrItty is right. if you pay off your full bill on the card on time, you don’t get any finance charges. Make sure to pay bills on time and you’ll be fine. Try to avoid paying the minimum balance since that only causes interest to accumulate.

seekingwolf's avatar

@tadpole
yeah I know I am young…do you think I should wait a bit then before trying to establish credit? Perhaps 21?

@MrItty yeah it seems dumb not to have a grace period…I hope that doesn’t go away with the new laws, we’ll have to see. If there isn’t a grace period, I won’t get a card.

@mirza the student credit card idea sounds like a good idea but I’m at a chain bank in PA (PNC) and they don’t currently offer that. I need to use that bank because it’s the ONLY one in my area where I go to school. I also get free checking and no monthly fees because I am student at the local school so it works well. I will suggest something to the bank about having a student credit card for local college students! It would be great for others to build their credit in this way too.

gailcalled's avatar

@mirza:Hi. Where’ve you been? Welcome back.

MrItty's avatar

@seekingwolf where you bank has absolutely nothing to do with what card you get.

mirza's avatar

@seekingwolf: you dont have to get a credit card directly from a bank. You can get it from major credit companies like American Express, Visa, Mastercard, etc. For example, I’d recommend the Chase Plus 1 card as a starting credit card. You don’t really have much point benefits or cash back benefits on the card but it’s good for building your credit. You don’t need to have an account at chase to apply for a card. Also if you visit, the american express, visa, etc site they all have something similar

@gailcalled: I’ve been busy with college stuff and work. But now it’s the summer. so i’m back to full time freelance work which gives me a shit ton of time to distract myself on the interweb

seekingwolf's avatar

@mirza Oh I thought you meant I had to go to a bank to get a student-only credit card. Sorry, my bad.

It’s okay if I got a card with no rewards or anything (those things are confusing)...I will have to look for something that has low fees and the like. Thanks for the Chase suggestion.

MrItty's avatar

You don’t want a card with “low fees”. You want a card with no fees. No annual fee, specifically. Any other fee associated with a card is a result of something you do wrong (go over limit, don’t pay on time, etc). Just don’t do those things. The annual fee is the only one beyond your control, and there’s plenty of options for cards without an annual fee.

seekingwolf's avatar

@MrItty Oh okay thanks! I figured that given my zero credit I would have to pay some sort of annual fee for a while, but perhaps not! We’ll see.

Are there any other fees that can pop on credit cards besides the annual/going over limits/paying late? Maybe there’s a monthly fee on some…I’m new to all of this. :(

MrItty's avatar

There are balance transfer fees – if you want to move the money you owe from one card to another. There are cash advance fees, if you use your card to take money out of an ATM. Don’t do either of those things.

Never heard of a monthly fee. If you find a card with any such thing, don’t go anywhere near it.

MrItty's avatar

Google for “Credit card comparisons” and you’ll find a bunch of sites devoted to showing you all your credit card options, including fees, rates, rewards, etc.

seekingwolf's avatar

@MrItty

I am looking at the Chase +1 student card right now. They don’t have an annual fee and the grace period is about 20 days. I’m going to mull it over for a while. Thank you for all your advice! I am new to this stuff and it’s a little confusing. I don’t want to make a mistake and ruin my credit.

Thanks for the help everyone!

EmpressPixie's avatar

Back of America also has a student option (that was my first card). Their student cards and accounts come without a fee. Beyond that your plan of get a card, use it, pay it off completely is a perfect plan and a great way to build credit. If you go to the Consumerist (http://consumerist.com/), that blog is devoted to consumers, mainly in America. They spend a lot of time talking about personal finance and building and maintaining credit. If you look through some old credit related posts you should be able to find a lot of great information.

tadpole's avatar

try and keep it fairly simple…...establishing credit takes time…you are doing it now…..if you are a student you prob want as few money worries as possible…get one credit card and no more….my mastercard came through my actual bank so you could look at doing it that way, you can probably choose who to go with, if it makes a difference…i can’t believe credit cards in the us don’t come with 30 days to pay off interest free, and if you buy with the card at the right time of the month you get about 56 days….which is worth trying to do…..have a current account and maybe a savings account if you want, again you could look at keeping it simple by keeping it all with one bank…..and you will gain some sort of kudos with the bank in question over the years by sticking with them for your business…a debit card for your current card maybe? would you need it?

i know people say move around with your accounts to get the best deal…but really do you want the hassle…when i was your age and studying i just wanted to keep it real simple…in’s and out’s…wait until you’re older and loaded til you need to do load of other things…afterall if you have money to spend you could try to get into the saving habit…if you started now this would be a real plus….i bet there are an awful lot of people who wish they could go back and do this from your age…..and if you want to spend do it wisely….i wish you good fortune!

Darwin's avatar

Part of your credit record revolves around other bills besides a credit card. For example, always paying the water bill, electric bill and so on in a timely fashion is part of your credit history. Paying rent on time is also. Buying stuff on layaway or on a payment agreement with a store is also part of your history. Car payments as well affect your credit history.

Start with those things, too.

tadpole's avatar

@Darwin great answer…

walterallenhaxton's avatar

Get a debit card. Why bother. Buy silver rounds until the currency crash and then you will be able to use them to buy from the private market far more than you will be able to buy with paper. http://bullion.nwtmint.com/silver_panam.php

seekingwolf's avatar

@walterallenhaxton

I have a debit card.

Buying silver will do nothing to help my credit score. You need a good credit score these days to secure loans, buy cars, buy a house, etc. I’m not going to raise my score by hording silver away for some supposed “currency crash”.

walterallenhaxton's avatar

@seekingwolf There will be a currency crash. It has already happened. Credit is a bad idea. Silver is a way to get credit. You could buy gold if you have that much money. You need to save up a down payment for a car or something like that. There are some dealers who are taking precious metals. Putting your money in a savings account will result in negative interest on it. With precious metals you don’t loose. So to secure your savings you need to put them somewhere that they are safe and you are not likely to spend them.

If you don’t want to save go to the rent to own store with a down payment and rent a TV or something. You will pay twice as much but you will have a credit reference.
I started with putting a down payment on a motorcycle and coming back when I was paid and paying the rest.

unlvrebelx's avatar

get rid of revolving debt (credit card debt, line of credit debt, etc…) and if you have no other option replace them with fixed rate loan. This will improve your score overnight (well not overnight, but as soon as reported). Revolving debt hurts your credit in two ways. First, the percentage outstanding vs. the available funds discounts your score, especially if over 50%. Second, the debt to income ratio affects your score. A fixed rate loan only affects your credit the second way.

unlvrebelx's avatar

Sorry, didn’t read the full question….you just need to get older and don’t use your credit cards…or at the very least don’t keep large balances on them. Pay your bills on time. Credit bureaus don’t look at your average balance on the card, they do a point in time. So if you use your cards to buy things you can afford, and then pay the card off immediately, that won’t necessarily help you out if the bureau records your balance before you paid it off…..it may actually lower your score.

Look at your credit report frequently and resolve all issues in a timely manner. You could even obtain a collateral based line of credit (as long as the line isn’t too high for your income…too high of available credit will count against you…not enough credit doesn’t count against but could help you build a score more quickly). The credit bureaus like that banks are willing to give you credit…they don’t like more available credit than you can afford, and they don’t like you applying for credit too much (a sign that you have poor cash flows). So its all a balancing game. Get us much credit as you can afford, (I’d only have one credit card if I were you), but don’t get too much, and don’t apply for credit too many times (once or twice a year).

…but basically you’re just young. Just stay clean. Pay bills on time no matter what.

unlvrebelx's avatar

“yeah I know I am young…do you think I should wait a bit then before trying to establish credit? Perhaps 21?”

No way…start right now..the sooner the better. Part of your score is how long you’ve had credit. My score is awesome because I opened a card in college to get a free sweatshirt (UNLV!!)...I’ve only used the card two or three times a year, and never kept a balance on it. I got into a house with a lower rate after school because of that decision. You should start as soon as possible….

You seem like you’re doing it right…just don’t carry debt unless all other options are out the window. Even then, find ways to collateralize the debt (like with a car) and make sure its a fixed rate lone , not revolving.

cricketonastick's avatar

I’m 18 and looking into exactly the same thing: how to build credit with no credit. What I’ve found out so far is that it really sucks. The best two ways to do it are by, 1) getting a gas card or something of the sort that is specific to a convenient store etc. 2) Get a secured credit card.

I’m not terribly sure how much of a difference there is between a student card and a secured credit card, but from what I’ve found in my research is that a secured credit card is a great way to start, especially if you have no credit.

They way they work is that you send a certain amount of money to the establishment and then they give a card which you can use as a credit card. Your initial deposit acts as a failsafe for them incase you don’t pay. Within 6 months you can apply for a regular card and keep up regular payments.

I’m not sure if this would be better for you than getting a traditional card, but it’s nonetheless worth looking into.

Good luck!

philosopher's avatar

You make purchases using your card and pay it off monthly in full.

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