You’ll have to start small. You will need to open bank accounts, preferably both savings and checking. Wherever you apply for credit, the lender will want to know where you live, work and bank. The longer you have lived or worked in the same place, the better.
Your First Credit. Don’t apply for a major national credit card like Visa or MasterCard without first building up a good credit rating by getting “easier” forms of credit and paying off the bills on time for at least a year. Easier forms of credit for the beginner are accounts at local department stores and accounts at certain mail order companies. You will buy products at a particular store with a credit card good only at that store, then you will be sent a bill. You will have the option of paying the whole amount off within a few weeks and be charged no interest, or of paying a minimum payment for that particular month (a percentage of the balance). You will then be charged monthly interest on the balance you have not yet paid off.
If you pay the minimum payment every month, after a few months your credit rating will show a good payment record. But make sure you don’t miss a month. You could end up getting a computerized indication on the credit rating that you are a slow payer.
A useful method to build up a credit rating is to buy goods, such as furniture, televisions or pianos, on a secured financing basis. In such a case, the store will sell you the items on credit, knowing that if you don’t pay they can legally take them back from you. As you pay for the item on a month to month basis, you are building up a good credit rating. However, goods sold this way are often of poor quality and are sold at high prices with high interest rates in exchange for the credit privileges. Some stores count on attracting naive customers who care only about obtaining the products quickly, and then are willing to pay high prices as long as the monthly payment is affordable. But you can shop around carefully, using the comparison shopping techniques we have already discussed, to find the best value. Don’t buy something you don’t want just to build up credit, but if you are buying these kinds of products anyhow, consider this method of building your credit rating if the store is reputable.
Secured Borrowing. Auto and some other loans are usually given on a secured basis. If the bank can seize your car if you don’t make payments, they decrease their risk and will be more likely to give you credit without an extensive credit history if all the other information like residence and employment is in order.
Keeping Good Credit. Once you build up those first few credit accounts, you are ready to build up really solid credit. You can easily check your credit score online. The best thing to remember is to always pay at least your minimum payments on time. If you have a problem or grievance with the credit company, try to iron it out without withholding payment. If you maintain a good credit profile, you should be able to get more and more credit cards with higher credit limits as time goes on.
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