Thursday, December 01, 2005

Dos and don'ts for establishing credit

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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 because the balances do not generally revolve.

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.
1) Don't overdraw your bank account. You will be charged fees and you could damage a good reference.
2) Avoid missed or late payments to any creditor. That is a sure way to damage your credit rating.
3) 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.
4) Don't give your card number to anyone over the phone or Internet unless you have initiated the transaction.
5)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.

Tips for the Day: Do you have company coming tonight? How about some quick recipes?

Some gift ideas for that special teacher:


At 5:53 PM, Blogger Fred said...

Well done. I worked in the credit card industry for five years, and these suggestions look like they'll serve people very well.

Of course, the part of this post that caught my attention the most was the link to gift ideas for teachers. Most of the suggestions were great. I wonder if I should somehow get these to my student's parents. Hmmmm....

At 7:06 PM, Blogger bubba said...

Good advice for alot of folks. Peter sent me.

At 9:51 PM, Blogger Oh great One said...

Great advice!

At 11:57 PM, Blogger Michelle said...

Excellent stuff, love the recipes :)

At 12:37 AM, Blogger Live, Love, Laugh said...

Excellent info, I will print this for the boys and give it to them, most have never even thought of credit and what it means, they come from families who don't have credit, don't buy insurance, get driver's licenses or even keep their vehicle tags and inspections up to date!!

At 6:46 AM, Blogger Danny Sims said...

This post should be must reading for all people! Great one.

At 9:09 AM, Blogger Texas_Ivy10 said...

Great post! I have a few things to add:

Don't max out your credit accounts. The income/credit ratio and how much credit you have available to you is important to your credit score as well.

Pay your mortgage, car note and credit accounts before any other bills... even utilities. You can always get the lights turned back on... but the damage done to your credit by missing one of those important payments will last a long time. A financial advisor told me this.

It's taken me about 8 years, but I have A credit... I need to work a little bit more to get it to A+ status. I was able to buy my house and a brand new vehicle... both with no downpayment and I got the lowest interest rates available offered to me.

Unless you are financially independent, credit is extremely important!

Loved this post!

At 9:25 AM, Blogger BarbaraFromCalifornia said...

Your posts are always so useful and helpful to people.

I appreciate the step by step advice you give.

Thank you for taking the time to talk about establishing credit in such a way.

At 8:35 AM, Anonymous Anonymous said...

we actually helped out oldest daughter take out a line of credit for school, she doesn't need to use it, she has enough money, so far, but we thought it was a good way to get her started.

At 11:14 PM, Blogger Running2Ks said...

Excellent advice. Also, don't take credit card offers when you are in college just because they offer you a 2 liter of soda. And then you have 15 open credit lines and you can't keep track of your cards.

Not that I did that.

I only did 10.


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