How to Safely Build Your Credit History

I’ve heard from several high schoolers and early college students asking for advice on how to build up their credit history in a safe and responsible manner. One of them is “Jenna”:

I’m currently a freshman at Washington University. I know I need to build up some good credit for the future, when I have to get a car loan and such, but I don’t know where to start. I’m worried about getting way into debt like some people I know.

credit cards by TheTruthAbout... on Flickr!Building a positive credit rating was one of the things I did right during my college and early professional years, and it’s paid off time and time again with low insurance rates and good terms on student loans, car loans, and our mortgage.

So how do you go about building a positive credit history if you have never applied for any form of credit?

Knowledge Is Power
The first step is to know exactly what you’re trying to build. Your credit history is merely a summary of all of the places from which you have borrowed money over the past seven to ten years – a credit report is just a detailed listing of this information. There are three companies (credit bureaus) that are in the business of collecting the information for credit reports – Experian, Equifax, and TransUnion.

A credit score is a number calculated based on the information in your credit report. The most common type of credit score is the FICO score. While the exact formula for calculating your FICO score isn’t publicly available, MyFico does provide some basic information about how your score is calculated:

FICO scores are calculated based on your rating in five general categories:
Payment history – 35%
Amounts owed – 30%
Length of credit history – 15%
New credit – 10%
Types of credit used – 10%

In other words, they provide a template for building good credit – all you have to do is take care of each of those areas.

Step 1: New Credit
The first thing you need to do is actually get some credit. The easiest way for most young people to get is to apply for a credit card – but just a single card.

Depending on the conditions of the credit market (and as I write this in September 2008, the credit market is tight), you might not be able to easily get an unsecured credit card. If that’s the case, save up your nickels and dimes and get a secured credit card. Get one issued by a major credit card issuer – Citi, Chase, American Express, or Bank of America – and make sure that they report this card to the credit reporting agencies. Contact these organizations directly – don’t use any sort of “middle man.” Here’s more information about secured cards, which you should definitely read before getting one.

In fact, getting a secured credit card is a brilliant way for anyone to start building credit, no matter what the conditions. A secured credit card is one where you “secure” the card by paying a specific amount in advance – often $500. Then, whenever you use the card, the bill is effectively automatically paid by the amount you’ve paid in advance. When you receive a bill, you’re actually just replenishing that amount you paid in advance to secure the card.

A secured card has several advantages. First, because you’ve secured it with money, almost anyone can get a secured card at any time. Second, because you’ve already effectively paid the bill, you can’t get into debt trouble with a secured card. Third, because it is a credit card, it helps establish your credit history.

As I mentioned before, you should only open one line of credit at a time, and wait a while before opening a new one. A line of credit includes any reason why you may want to borrow money, from a credit card to a payment plan, from a student loan to a car loan. If you open up several lines in a short period of time, you appear to be a risk to people who would loan you money – in terms of your credit score, the “new credit” portion will go down. So just stick to one line on occasion.

One effective way for a college student to manage this is to get a card exclusively for buying textbooks. Use this card at Amazon or at your school’s bookstore and then put it up until the next time you need to buy books.

You can also begin to build up credit through your student loans, if you’re the primary borrower. You’ll likely need a co-signer in order to get the loan, but that student loan will count on your credit report, establishing your credit history.

Step 2: Payment History
Once you have this line of credit, though, keep the payments up. Don’t be late on a single payment.

Each month, the credit bureaus request the status of your payments from your creditors. Are your payments up to date – or at least less than thirty days past due? If everything is good, it helps your credit score. However, if negative reports start to come through – more than thirty days late, more than sixty days late, in default, and so on – then your credit score will start to take a serious hit and those negative marks will show up on your credit report.

Don’t let it happen. Keep those bills paid.

Step 3: Amounts Owed
It’s never a good idea to charge up those credit cards. You should always strive to keep your actual balance at 30% or less of your credit limit, as that keeps the amount owed under reasonable control.

If you have a secured credit card or a student loan, this part is pretty much automatic, as your borrowed amount is effectively fixed and known. It’s really only a concern if you have something with which you can borrow a varied amount, like an unsecured credit card or a home equity line of credit.

The best method of all is quite simple: never use credit for an impulse buy. If you live by that, you’ll be in much better shape than many people.

Step 4: Length of Credit History
If you follow the first three steps and keep them up over a period of years, your credit will be in good shape. Even better, the longer you keep it up, the better your credit score will be (up to roughly seven years).

What does that mean? Pay the bills, steadily but surely, and keep that first credit card, even if you decide to stop using it, because it establishes the length of your credit history.

I still have my first credit card, tucked away. It has had a zero balance for years, but when I was getting my mortgage (which was manually underwritten), the underwriter actually pointed out that it was a good sign that I was reliable with available credit (even though the balance had been up and down quite a bit in the years preceding our mortgage).

It has a similar positive effect on your score. Keep up the good work – and you’ll be rewarded for it.

Step 5: Types of Credit Used
Another minor factor is the types of credit you have. If your entire credit history is based on unsecured credit cards, for example, you’ll get a small negative mark on your score simply because all of your credit is revolving.

How can you alleviate that? Balance credit cards with other forms of debt, such as student loans or mortgages. Since it’s often much easier to get a student loan, a car loan, or a mortgage if you have already-existing positive credit, getting such a loan and steadily making payments on that as well will further boost your credit.

Remember, though, that the types of credit used is a very minor factor compared to the other pieces of the puzzle. Focus on just getting credit first and keeping it paid. That will be enough to get you in position for things like car loans or student loans, which will provide diversity in the types of credit you have.

Checklist
If I were starting over today in building my credit, here’s what I would do.

1. Get a credit card, preferably unsecured. If I couldn’t get an unsecured one, I’d contact a major bank and attempt to get a secured one.
2. I’d lock the card up in a safe place and only use it for a small number of purchases – it wouldn’t be in my wallet so I wouldn’t be tempted to spend it without reason. I’d also keep that first credit card, even if I zeroed out the balance and stopped using it.
3. I’d pay every bill as it came in.
4. After some time, when it became reasonable in the course of my life, I’d apply for a loan of some sort – a student loan, a car loan, or a housing loan.
5. I’d check my credit report regularly directly from the FTC, not through a middleman operation like freecreditreport.com. If anything incorrect showed up, I’d do the follow up work, contact the credit bureau in question, and get the issue resolved.

Follow those steps and you’ll be fine. Your insurance rates will be lower and when it comes time for big loans, like your mortgage, you’ll be eligible for good rates.

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  1. Laura says:

    Great post! I only wish I would have read it when I was 18, however even then I probably wouldn’t have realized how valuable the information is…

  2. Jenna said: “When I have to get a car loan and such..” Jenna has already decided she needs a car loan. That is sad. As a parent of three, one in college and two finished, none with car loans or debt of any kind, this is what I would have written to Jenna instead:

    Jenna: Since you are only a freshman and are thinking about car loans and such, it seems that you are already off track. The first thing you should to is take college courses in personal finance and economics. Then come back and we will talk about use of consumer credit. Good luck.

  3. rich says:

    per #3 – if you are using an amex that has no pre-set credit limit (e.g., Amex gold), how does that factor in?

  4. Kevin says:

    Can’t believe this wasn’t in the blog post, but anyone can get their credit report free once a year from each bureau at: http://www.annualcreditreport.com

    I cycle mine every 4 months so I stay somewhat current.

  5. Tyler says:

    Hey! Great article.

    I got my first credit card when I was 19 or 20 years old. I’m now 21 (Almost 22). It was a secured $500 credit card with B of A and I still have it (but try not to use it).

    I Recently (about 6 months ago) got a Washington Mutual $5,000 credit card. I never missed a payment, and my credit score is currently 672.

    I’m traveling overseas next year, and I’ve thought about getting a Capital One credit card, because I heard they are the best with foreign currency (And they give you 1% back on purchases). The only problem is that I currently have two credit cards with a total available funds of $6,000… how long should I wait after getting my WaMu card before I get a Capital One card?

    Is there such a thing as having too much available credit? Should I limit myself to $10,000 of available credit or limit myself to three cards? Four cards? etc?

    Also I read somewhere that someone got a credit card for $10,000 with an introductory APR of 0% for the first year. He withdrew all the money and put it into a 4.5% APY savings account (Or maybe it was CD, not sure). Each month he paid the minimum, withdrew it again and put it back into savings so he had $10,000 sitting in a 4.5% APY account for 12 months… after the introductory 0% period was done, he paid it off and uses the card as a normal card. Is this a smart thing or stupid thing to do? He ultimately made between $500-750 just from having the money sit in an account for a year… which isnt bad at all. But does this ruin credit?

  6. Kathy says:

    Based on the many mistakes I made with credit in college, I would add:

    1) Avoid gas cards, department store cards and personal loans. They are almost useless, do nothing that you can’t do with a regular credit card.
    2) Avoid cash advances at all costs.
    3) Remember cars cost more than they seem, even you pay cash for it, it needs maintenance, insurance, new tires, well you get it. Don’t get a car until you have a full time job to support it.
    4) Learn how to save even if it’s only a few hundred dollars in a savings account. The best way to never get in over your head with credit is to with a little emergency fund. I wish I had learned that 20 years ago. You’re a smart one to even be thinking of it now.

  7. Lurker Carl says:

    Getting a secured credit card is a terrible idea. Not only does it tie up a specific amount of money but it erases your credit history when you cancel that card to retrieve your deposit. And most secured credit cards are rife with fees and restrictions designed to devour that deposit. Just get a no annual fee bank credit card and only use it for gasoline, or something else you typically purchase with cash on a regular basis, and PAY THE BILL IN FULL EACH MONTH.

  8. Trent Trent says:

    “Just get a no annual fee bank credit card and only use it for gasoline, or something else you typically purchase with cash on a regular basis, and PAY THE BILL IN FULL EACH MONTH.”

    As I said at the beginning, Carl, as well as a couple of times throughout the article, that works when credit is loose and companies are willing to issue unsecured cards to people with zero credit.

    Right now, credit is as tight as a drum. It may be very hard to find someone willing to issue an unsecured card at the moment if you have no credit history at all.

  9. Joel says:

    Wonder if anyone knows this… My credit score has been hovering around 740-780 for probably 3 years now. I know this is above average, but it just won’t seem to nudge any higher.

    I have a WaMu credit card that gives a free “credit profile” that I’ve used to track the number over the years (I know this isn’t 100% accurate but I find it a good benchmarking tool). It has consistenly listed the following as the “primary reasons” my score is what it is:

    1. The length of time your revolving/charge accounts have been established is too short
    2. The length of time your accounts have been established is relatively short

    So, the question is… When will I stop seeing this? I’m 26. My credit history started when I was 18. I still have 2 credit cards that I opened at 18 as well as student loans all in good standing (and low/no balances). I’ve also really not opened many new accounts, so the average age of my open accounts is probably 5+ years.

    What is considered “relatively short”?

  10. Eden says:

    Get a regular credit card and set it up to auto pay a bill or two you pay evey month (cell phone, web service, etc.). Then set it up to auto pay off the card each month from your checking account each month. Most cards offer these features on your online account. For bills that vary from month to month (e.g. cell phone), you will need to set these up with the provider to auto charge your card. The goal is to automate the whole process.

    Put the card away and your credit will build over the years with no fear of overspending. Get another card after a while and repeat. Two cards with regular charges and payments should be enough.

    Don’t forget to update everything when you move, change services, or you get a new expiration date.

  11. cv says:

    Joel, check out this article on MSN Money:

    http://articles.moneycentral.msn.com/Banking/YourCreditRating/PerfectCreditYouDontNeedIt.aspx

    If your score is in the high 700’s, you’ll be fine.

  12. liv says:

    Oh this is nostalgic because I got a credit card when I was 16 and it took a couple accidental maxed out months (my limit was $500) to get the hang of what I was doing (I had a job, don’t worry). Then I was on top of it! Paid all bills in full, and as they came in. Eventually, when I got to college, it got a little harder, but I still managed. Discipline :)

    Start small and build your credit from there and beware of overshopping. There are so many temptations you will encounter. My sophomore year hallmate was about to file for bankruptcy because she had a bad shopping habit and too many store credit cards.

  13. Emily says:

    This is a great primer on building credit. Getting a basic credit card and paying it off every month is just about the best thing a college student can do! You just have to have great discipline, and that’s the hard part for people. In that case, though, you can always ask your bank to keep your limit at a certain amount so you’re not tempted to go wild.

  14. Lyn says:

    Great article Trent. I am a 20 year old university student who was just thinking about building my credit history yesterday – it was like you read my mind!

    I want to apply for a credit card, but I have no idea where to start?

  15. Ryan says:

    Great post…have actually been wondering about this for a while.

    I’m 16 and a junior in high school. Would it be a good idea to have my dad add me to credit card account I use for gas? Currently, he just gives me his card when I need to fill up. It’s paid in full every month and he’s always had good credit. If I was on the account, I’d start to build a credit history and benefit somewhat from his existing positive credit history correct?

    I was thinking this would help me over the next 2 years when I need to secure students loans and get a card of my own.

  16. Ryan McLean says:

    This is a great list. I have just got a credit card and I am using it to make me more money online which is awesome, but I am also very aware of my credit history and I am hoping that this helps increase it…

  17. Daniel says:

    It could be beneficial to people to provide the link to the FTC site that you can get your credit report through. This site is annualcreditreport.com . A good piece of advice on this site is to only request a report from one agency at a time and spread out your requests so that you can view your report 3 times every year.

  18. Lurker Carl says:

    Trent, you only mentioned the brilliant reasons for getting a secured credit card. You must disclose the potential pitfalls, they can be poison to a financial newbie. The credit market will not be tight forever, so wait until banks loosen up to get an unsecured credit card with no strings attached.

    There are far more lousy operations offering secured credit cards than good ones. Getting the wrong card that results in a poor credit history would be worse than continuing to have no credit history. In the both good and bad economic time, bad financial products are always plentiful.

    A poor choice in step one puts step three out of control with fees. A good choice in step one will negate step four when you cancel the card to retrieve your security deposit. A good history vanishes with the cancelled card because there is nothing to report, only a poor history would remain.

    $500 is a lot of money to trade for a credit card. Most department stores will issue a store credit card to anyone who can fog a mirror. It can be used to purchase socks and shampoo every few months, payed off when the bill comes and good credit will be established without fees or security deposits. And you’ll get the flyer to know when they go on sale again.

  19. Laura L. says:

    About department store credit cards — I got a Macy’s card about 18 months ago. I have used it four times. Every time I bought an item that was on sale/reduced. Sometimes I had a coupon for an additional discount. From a starting limit of $500, my limit is now $2000. I imagine that looks great on my credit report. :-)

    About canceling a card — I want to cancel my first credit card. I currently have a $0 balance on it, but there is a mandatory monthly fee of $6, and an annual fee (something like $100), plus the limit is only $450. Six months after I got this card, I got a second one with a $2200 limit (which I applied for because the first card would not consider me for a limit increase). I pay my bills in full every month, but I’m trying to cut my expenses back and I want to be free of the fees. Is six months enough lost credit history to really ding my score?

  20. Kathy says:

    When I was in college in the late 80’s, you could barely walk through the plaza of the university without dozens of credit card companies trying to flag you down to fill out an application. Has it changed that much? If you were an engineering major they couldn’t wait to give you a credit card (English majors like me weren’t so desirable.)

  21. Hardwareguy says:

    On step 4 I’m pretty sure that the age of your credit accounts matters far beyond 7 years. I just purchased my fico score from all 3 credit bureaus and the age was the only thing hurting me. The fico report tool said their highest scoring individuals had an average credit account age between 6 and 12 years.

  22. Matt says:

    I have had a credit card since I was 18 (8 years ago) and have used it maybe 10 times during that time. I’ve never had a balance. Would my credit score be higher if I used it every month and paid it in full or will it be the same as now with never using it?

  23. deb says:

    I had a hard time getting an unsecured credit card while in college, and eventually found that this worked:
    1) Find a bank that offers a student credit card
    2) Open a checking account at that bank with a small amount of money
    3) Apply for the student credit card (My application was rejected when I didn’t have a checking acct with the bank)
    4) Close the checking account a couple of months later.

    They’ve since ‘graduated’ me to a non-student card, which lets me have a higher limit. My original limit was only $600.

  24. Rob in Madrid says:

    there is really something assbackwards about a system that says that going into debt is the only way to establish a good credit rating. What about saving money. I can’t believe that having loads of money and no need for credit makes you a bad credit risk. Is it any wonder the financial system is at the risk of a meltdown!

  25. reulte says:

    Ryan (#9) – I’m pretty sure that will not build you any credit rating at all since your father is the cardholder, this does not build you any sort of credit and you wouldn’t receive any of the benefits of his good credit.

  26. Trent Trent says:

    “On step 4 I’m pretty sure that the age of your credit accounts matters far beyond 7 years. I just purchased my fico score from all 3 credit bureaus and the age was the only thing hurting me. The fico report tool said their highest scoring individuals had an average credit account age between 6 and 12 years.”

    I should be more clear on that. The longer your credit history, the better. Most negative things (like late bills, etc.) disappear at the seven year mark, though. That’s what I was referring to.

  27. Rebecca says:

    I guess I am not sure, but how does obtaining a debit card help your credit score/history?

    My brother-in-law is 29 and can’t get approved credit card. He has always paid everything in cash. He is renting to own a house from his parents. He had problems about 5 years ago getting approved for a cell phone because he had no credit and needed his mom to cosign it with him. He has a nice full time job. He went on a trip to New Mexico in May and felt a little uncomfortable carrying around a wad of cash. He has also never had a car loan or any other loans.

    The bank that he goes to won’t approve him for a credit card. But would a debit card help his credit history?

  28. Kevin says:

    I think Rob has a great point. Unfortunately the cartel of credit bureaus now controls the system – I wonder what we little people can do about it?

  29. Katie says:

    I agree with Rob and Kevin. Why, exactly, does anyone NEED a credit score? Personally, I don’t own credit cards. I have a check card. I save up for “big” things and I had a manual underwriter do my mortgage application. That is sad that so many people think that you HAVE to have credit cards and a good credit score, etc, etc. No wonder we are in a mess. No one knows how to save up anymore.

  30. plonkee says:

    @Rob (#24)
    The system actually makes perfect sense. People who have already demonstrated that they can pay money back are safer than people who you don’t know anything about, which are safer than those that you know won’t pay money back.

    Therefore, people with debt have better credit histories. Of course, that’s not the only factor, but it’s kind of how it came about and better than the olden days when you couldn’t shop around for credit.

  31. Aly says:

    I’m a university student who just got a credit card in order to build up credit (good timing on the post, I was just about to write in and ask about it.) While I was at the bank filling out an application, the bank rep told me that my credit rating would be better if I made the minimum payment each month, but always left something (say, 5$) on the card, rather than paying it off completely. Any thoughts from anyone?

  32. Erin says:

    I would suggest that she start saving now for a used car so that she doesn’t *have* to get a car loan in the future.

  33. Matt says:

    The way I was ‘taught’ in college was similar to Trent’s recommendation. I got a credit card with a $1000 limit through my university’s credit union and I used it for one thing and one thing only: To buy gas, as this is something I would need tobuy anyway it kept me from using the card for impulse purchases at the grocery store or food court. As an added bonus I could now use pay at the pump. Then by paying the card off every month I built up quite a nice credit history and only a few years later qualify for tier A loans.

  34. Don. says:

    If your credit is a mess don’t despair, it’s not hopeless. When I got married a little over 4 years ago we were young and stupid, lost a job, and moved to another state. Next thing you know we had $7,000 in credit card debt. YIKES! So we got those 0% APR for one year cards, transfered from the highest interest card as much as we could onto them, then let it sit while we paid down the highest interest card. Once that was paid off and the year was almost up, we repeated it. I know back then my credit was in the low 600’s, but now we’re totally debt free and my score is over 800. Of course I ate a lot of Ramen and sat around with a sweater and a jacket in winter instead of using the heater. Wasn’t easy but it worked.

  35. David says:

    I’m 24. Here’s my credit experience:
    I got my first card at 20-21, forget exactly when, from Washington Mutual (which if it goes under, I lose my oldest credit account, *sad face*). Now that they’ve raised my credit limit to a respectable amount, I charge large purchases to it. 1-3 hundred dollar balances I’ll pay off in full, 3-5 hundred dollar balances I will seldom take a second month to pay off. It doesn’t matter regardless, since I like to carry 10 times that amount in checking (hooray for being a single engineer). I got a second card from Target when I was 22, and charge anything I buy there. I charge my recurring minor monthly payments like Netflix to the Wamu, and pay them and all other expenditures in full every month (minus previously mentioned exceptions).

    Long story short, I have three years experience of taking credit that I don’t need and paying it off quickly. End result? Credit score over 800. I can’t say what will happen in part 2, but I think I’m set for the coming days when I’ll actually need credit, assuming anyone’s still giving loans a year or two from now.

  36. joel says:

    Pay cash. Then your FICO score means squat. Your insurance rates will be higher in some cases, but that still cheaper than paying 7% on a car note AND 20% on a credit card AND 5% on a student loan AND ..the list goes on.
    This society is a society of instant gratification and it’s getting worse with each generation.
    If you have to borrow money to buy it, you can’t afford it.

  37. kk says:

    I got a real good trick to build credit history, but it costs some money. You need to have a credit history before you can do this, so first get some credit card somewhere and use it for two / three months. Then go to your mom/dad/someone you can trust and give them your spare cash (couple of hundred/thousand will do). Both of you open an account at prosper.com and you start a 0% loan request and your trustworthy person puts your money in it. You will have to pay a fee (amount depends on your current credit score) for it, but you get $50 back if the borrower signs up through the lenders invitation. Set it up for automatic withdrawal and you have a 0.5 to 1.5% 3 year loan that will build your credit history. Each month your monthly fee is deducted and can be booked back from prosper to the account your trustworthy person set up for ACH. Total cost, about $25 a year. And it builds credit history extra fast, because the points you get for a multi year loan are different then the ones you get for a credit card.

  38. Val says:

    Can you have credit as a minor?

    I requested one of my credit reports after I was denied a college student credit card from Citibank. It noted that I owed over $300 to some medical clinic, but that was in 2004 when I was only 14. Could you be billed like that as a minor and is it supposed to be on my credit report? Isn’t it supposed to be on one of my parents? Also, if I pay it (which I guess I will have to) would it remain as a bad mark on my credit report for a long time?

    Argh, already have a crappy credit history and I just turned 18!

  39. gr8whyte says:

    Returned an unfilled and unsigned prescreened CC offer once and Chase sent me a CC. Called them up and were they embarrassed! My inner criminal has sometimes wondered what my liability would have been had I not called them but had gone ahead and used it.

    Go ahead and try it. Simply write “No, thank you” on prescreened offers, send them in unfilled and unsigned and see how many CCs you end up with.

  40. Anonymous says:

    gr8whyte, I hope you’re joking. Mass mailings should be shredded.

  41. mando says:

    I don’t think it’s good to leave your card unused for more than a 6 month period. Credit card companies do not report anything to the credit bureaus if they don’t see any activity during the 6 month time frame. So, make a small purchase and pay it off during the month so that it shows that the account is active and it gets reported to the credit bureaus.

  42. reulte says:

    Val (#31) You are not supposed to be billed like that . . . but it happens. Try putting an explanation in your credit report (the credit report should tell you how) and then applying for credit a couple of weeks later. The note will only last for 90 days before it disappears off your credit report but it may suffice to get your first card. Even so, it may remain on your record for the 7 years as unpaid or late debt.

    Also, don’t believe that that bad reports, discrepancies fall off your credit report. I’ve had an unpaid bill (not mine) on my report for over 12 years. When I make major financial moves where my credit report may be pulled, I put in a explanation – “This bill is not mine, this person (different name) is not me, etc”. The reason, so I have been told, is that each time the bill is sold to another collector – it becomes a ‘new’ bill :-(. However, it is a cheap bill and the remainder of my record is absolutely stellar.

    Since the longer your credit record, the more ‘value’ it has for you, I would try to get a credit card that I would not want to get rid of in the future (i.e. preferably not a secured card). Saying that, I would recommend to Jenna that she not even bother with a credit card until she gets out of college and has a full-time job that requires one. How much does a freshman need a car at college anyway? Start learning to handle money first. And if you’re worried about debt – getting a credit card is the quickest way to get into debt.

    Student loans will start to build up a credit history, as will a personal/signature loan at a bank — perticularly if you ask if you can take out a small, short-term CD at that bank/credit union and ask if you can use that as collateral.

  43. Andrew says:

    @reulte

    Why not dispute it under the FCRA. If they can’t verify the debt they’re legally obligated to remove it from your history.

  44. @Ryan and reulte says:

    Actually, it does help your credit. My mom put a card in my name for emergency purchases and it shows up on my credit history. I am 19 but I have a credit history spanning from 1998, when I was 10. This got me my first credit card with a credit line of $2,000. Any way that you can share credit with a parent (ie. co-signing loans, which you unfortunately can’t do until you are 18, or having a credit card from their account in your name) is a great way to build credit.

  45. gr8whyte says:

    @ Anonymous : Relax! CC companies share security info much like antivirus software companies share virus info so this hole should have been plugged long ago (but is it really? hee hee). It’s actually illegal for a company to send you an unsolicited CC but if you should use it even once, you’ve accepted the terms of the CC agreement just like you’d completed the original application. You would never have gotten the prescreened offer had you not qualified for it in the first place so no real harm’s done unless you’ve 5 days to live and want to buy some toys before you go (they’ll just go after your estate). And what’s better than shredding prescreened offers is to opt out; I have.

  46. Old Gold says:

    It’s “The Simple Dollar”… from the starting point of having little to none. With a greater goal (personal goal) of cash-on-hand investments only, this article supplies some good concepts for the “if-you-must” and/or “if-you-had-to-have-it”, where could you get it; the credit industry itself needing sound, stable, and practicle, candidates to supply their industry.
    Related Topics: Assurance Industry ; Personal Finance; morgage; 2008 crisis; Government Bailout;
    SIMPLIFIED : Personal Finance; financing. Reading, writing, and arithmatic.

  47. Martin Wilson says:

    I too am surprised you didn’t mention annualcreditreport.com. It’s free and just forwards you to the either TransUnion, Equifax, or Experian. It’s very easy.

    In fact, the law firm at which my mother works recommends this website to all their clients. I want to note, this is NOTHING like freecreditreport.com.

  48. reulte says:

    Andrew – #43 – I have nothing to support my claim that the bill / name / address isn’t mine. (How can I prove a negative?) The /credit bureaus/agencies say they have the bill under my SS# and the police won’t take a report without me jumping thru a dozen hoops of their making because I wasn’t in my state or residence when the bill (a utility bill – even though I CAN prove I lived 1500 miles away at the time) was originated and it happened ‘so long ago’ (that was when I returned to my home state and got my credit report). At this point I don’t want to make hash of it by the bill somehow getting back to the original defaulter with my SS# on it. Every so often, I think about pushing to have it off my report, but then I sink back into work, kid, life and all the attendant busy-ness.

    Comment 44 – Hmmm. Obviously, I’m wrong — and I’ll keep that in mind when my boy gets a bit older. Assuming that he’s like his thrifty mom!

  49. Tom says:

    This might sound stupid but here goes…

    If I pay off the bill in full each month what is the incentive for the company to lend to me in the first place? Surely the ideal customer (from the bank’s point of view) is someone who doesn’t keep up with their bills but has good collateral?

    I have two cards which I got for the cashback and I just pay off the bill in full every month by Direct Debit.

  50. I’ve often thought about getting a credit card, but I’m not sure I am old enough.

    I want to build credit, but I don’t think I’ll be able to open a card yet (I’m only 15).

    I have a good job and a debit card/checking account, so I’m confident I’ll be able to pay. Any advice for getting a first card? Do you know the minimum age?

  51. John says:

    My credit score is very high even in this crazy economy, and here’s how I did it:
    1) Be a very very responsible person and do not spend or live beyond your means. That is a given. Also given do not be late on payments and check your credit account every other day for your balance and identity theft. We all spend at least 2 hours a day on the PC, make this part of your daily routine.
    2) As mentioned before, have 2 monthly payment automatically paid by your credit card, so there is a sense of ‘steady expense’ from the credit bureau side.
    3) This step takes a lot of self discipline, watch your step (!!!!) it’s a slippery slope you have to take if you want good credit fast. check your balance every week so you don’t go overboard !!!! –
    Remember we are a consumption economy, and credit bureau need to maintain that in order for the economy to flow in the right direction. Naturally if you consume and still manage to pay, you are a great asset to the economy, and it would be wise to get you to spend more, meaning give you a better credit rate, so –
    DO USE your credit card ALL THE TIME, but keep your finger on the pulse. Use your card to buy milk, clothes, pens, paper, ink, gas and everything you would with cash. I repeat – MAKE SURE YOU DON’T GO OVERBOARD and NEVER max your credit. Use up to 80% of your credit every month; when it’s up, switch back to your debit card or cash mom gave you. (remember to take into account expenses from step 2)
    My system was every evening I would check my expenses for that day from the slips I saved (please tell me you keep those), and took the money (cash)from the ATM and put it somewhere safe, so you can’t spend it. Later on, I had a quazi-savings account which wasn’t for saving, it was a ‘parking’ for the credit costs, and at the end of the month I transfered it back to my checking and paid my credit bills with. For example, you have $500 credit limit. Spend $400 every month with the card, but make sure to transfer $400 (in chunks, as the month goes by) to that saving account, or withdraw cash as spend . At the end of the month, transfer $400 from saving to checking, or deposit the ‘stash’ back to the checking and pay your credit bill at the same time (we all do it from our pc, so it’s an easy two-step dance).
    4) don’t pay your balance to the fullest, always keep 3%-5% on the card. It’s not really logical, but it works. They need to feel you need them.
    5) if you can’t get a good secured card, go to capital one with whatever crazy slashing rate they give you, you can always bargain later on. Every 3 month make the payment by phone and ask for an APR decrease and credit increase. And insist. If you’re embarrassed to ask, I can’t really help you … trust me it’s just like a market, they bargain with everyone.
    6) Advanced stage once you have established something, say $5000 – always have a loan on file, and make sure to pay it of course. If you don’t need the money, put the loan in an account that pays directly to the credit card AND DON’T JUST SPEND THE MONEY. Again, this goes to show you keep borrowing, but stand up to your monetary obligation. If you do this 4-5 times for 12-24 month loan, your credit will skyrocket.
    ————-
    Please remember some of these step require a lot of self discipline and control. Do not follow step 3 and 6 if you feel urges you can’t control when ever you walk by a shoe store or ‘best buy’.
    In other words, grow up, and do not repeat mistake 80% of your fellow Americans make.
    Be a smart consumer, and spend wisely.
    Good Luck !

  52. Rahn says:

    Not all Secured Credit Cards are created the same. At my credit union, I was able to acquire one with a $500.00 deposit, zero fees and a 7.9% interest rate, that, if I understand correctly, I will never be charged, as long as I pay off the entire card before the due date.

    I use this card for grocery, gas, etc. purchases and pay it off every month. I usually run the card up to 1/2 or 2/3s of the total credit line, then pay it off before the due date.

  53. Jake says:

    The strange thing is, to have good credit, you pretty much have to be in debt, which many people think is a bad thing. But with good management, debt can be your best friend. Consumers with excellent credit can obtain loans with low interest, which can help you free up money to put into equities or other investments. If done right this result in a better financial situation vs. paying cash for large purchases. Managed right credit and debt can be rewarding.

  54. i would like to find out how i can build my credit.i am 22 years old and i am starting remington college on november 17, 2008. i am going for pharmacy technician and i would like to start building my credit so i can get nice things in life and i wont have to worry about having no credit. if you could e-mail me back and let me know what i can do i would really appreciate it. thanks, christie bice

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