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Beginners Guide to Credit
I remember back when I was 18 and completely oblivious to the
concept of credit. It seems like eons ago! If only I had known
then what I know now about credit. Hopefully, this short guide
will be able to give you some ideas on how you can build a solid
credit rating... even if you have to do it from scratch!!
Everyone has to start somewhere, whether you are 18 like I
was, or even 30, there is no better time than the present to
start thinking about your financial future. Chances are, your
credit score will come into to play during some point down your
financial-life road. And when that time comes, you had better
have some concept of credit and how it can help you, or else you
might find yourself unable to qualify for much of anything.
First of all, if you are starting from scratch, don't worry!
It will take some time, but eventually you will be able to
qualify for the bigger things like a car or a mortgage. The first
thing you need to do is establish your credit. The easiest way to
do this is to get a credit card issued by your bank. Chances are,
the bank already knows you and won't have as much of a problem
with issuing a card to one of it's current clients. If you don't
already have a checking account, get one! There are a ton of
great banks out there that issue free checking accounts with
check cards to new customers. But take note! A check card or ATM
card isn't the same as a credit card! With these you are simply
withdrawing the money that you already have in your checking or
other accounts. A credit card is very different...
A credit card is actually a right given to you by your lender
to borrow a set amount of money from them. You might be shocked
to find out that the only card you can get when you are first
starting out comes with an outrageous interest rate. Sometimes as
high as 15-25%. But don't fret... as long as you pay off your
balance every month, those interest rates will be easier to
swallow, and you will eventually to be able to qualify for a card
with a much lower rate.
A note for the beginner: In order to have a good credit score
for life, you need to develop a personal goal... never, EVER make
a late payment for anything. I was lucky when I first started
building credit to have a mother that ruthlessly instilled in me
a healthy respect for the power of paying bills on time. It not
only builds your credit quickly, but makes you a good steward of
your finances. There were times when I owed money for a credit
card bill, and I was so deathly afraid that the creditor would
take the bill to collections and ding my credit, that I stooped
to borrowing money, just to make sure my credit record stayed
clean! I know that seems a little crazy... but trust me, it is
extremely important to pay all of your bills on time, even if you
have to go out of your way to do it. You will appreciate your
diligence down the road.
A warning for the Beginner: Be careful with your spending! It
may seem exciting when you first get a credit card with a $1,000
limit, but it can be very dangerous. It is very tempting to
pretend that your credit card represents money that you have in
the bank. My advice, don't ever spend more than you can pay off
in that same month. And if you aren't able to pay off your entire
balance in a month, pay more than the minimum requirement. This
will help give you a slight boost.
Moving on... After you have had your bank issued credit card
for a while, and feel that you can handle the responsibility, try
moving onto one of the major credit card companies. There are
many out there. Try to find one with the lowest interest rate and
no annual fee. Don't apply for too many at once! Each time you
apply for a C.C., the company will run your credit to see if you
will qualify, and to see what your spending limit should be. One
or two should do just fine. If you did well in handling your bank
C.C., you should have no problem qualifying. A company I like is
Providian; mostly because they give you a brief snapshot of what
your credit score is each month, and as a beginner, you will want
to start paying attention to what your score is and how it can be
effected by your different spending habits.
After a while of responsible spending with your new credit
cards, your score will really start to move. You'll notice
multiple credit card offers from many companies mysteriously
start showing up in the mail. Your score will probably be
somewhere around 600-650. This isn't a bad credit score, but it
could be better. Most likely, it is around this range because of
your lack of credit history. As you can see in our Credit
overview section, length of credit history accounts for around
15% of of your overall score.
Another factor that comes into play with your score is the
type of credit you have been issued; approx.10% of your score
relies on it. You can only build so much credit with your credit
cards. Eventually lenders will like to see some other forms of
proof that you are able to be responsible with monies borrowed.
This is where a personal loan, or a car loan can be helpful.
Lenders view this as a different kind of borrowing than from the
credit card companies. In terms of building your credit, these
types of loans are great.
After that, you should see a significant leap in your credit
score, and should be able to move onto bigger and better things
like a home mortgage loan! Just always make sure you remember the
fundamentals: always pay your bills on time, and never spend
beyond your means. With these tips in mind, you will be on your
way to making sound financial decisions for life.
Justin Smith is the President of the Christian Real Estate
Network -- http://www.Hismove.com
MORE RESOURCES:
Credit - Google News
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