Some people are actually scared of credit cards. Often I hear that a person doesn’t want a credit card because it will just create debt. While that’s noble and all, it’s really the wrong answer. You do want a credit card. Why? Because building credit is the ONLY way you are going to get what you want out of this American life. Sure, cash is king in some aspects. But cash don’t mean shit when we’re talking about home buying, business building, or even renting an apartment. I’ve seen many a fine young man believe that cash will get him into a house, or into a rental only to find out that he needs credit or no dice.
Building credit isn’t as hard as some people make it out to be. Whether you’re newly 18, or in the throws of adulthood and just realizing you need credit to do pretty much everything, there’s always a starting point. But first, here’s a few things you need to know right off the bat:
- Utility bills do not build credit.
- A cell phone account under your name does not build credit.
- An apartment in your name does not build credit.
All these things have the ability to hurt you if you don’t pay up, but never do they ever help you build a credit score. So now that we got that out of the way, let’s talk about what will help you get to where you want to be when it comes to your credit rating.
1. Get a credit card from major bank.
Notice how I said “major bank?” Credit cards from retail stores look horrible on your credit, even if there’s a cute lil Visa logo in the corner. This is because retail stores typically have inflated interest rates that are very difficult to pay down unless you’re already big ballin’. Credit agencies look at this high interest credit card and only see a ship waiting to sink. That doesn’t exactly scream financial stability. By major banks, I mean Discover, Wells Fargo, Bank of America, Capital One, etc. If you’re a newbie or rebuilding credit, Capital One is your best bet. Other banks have stringent qualifying policies that only give credit to people with an established credit history. Sure, the annual percentage rate (APR) might be lower, but you haven’t proven your credit worthiness for a low interest rate yet. You gotta pay to play.
2. Make credit card payments on the due date.
When you’re working on building credit, the credit bureau needs to see that you’re paying down debt. They only see this once a month. So if you’re paying the card off before the actual due date, they see a $0 balance every 30 days which reads like you’re not using the card at all. Realistically your first credit card is going to have a low limit. Good. Spend as much as you’re able to pay, and pay back the minimum payment or more on time. Once you’ve got some experience and credit history under your belt, you can start paying cards off in full before the due date. Until then, let the balance sit until it’s due to achieve the Magna Cum Laude of credit worthiness.
3. Get your name on that car loan.
There are some debts that look good on a credit report. One of the most attainable “good debts” is a vehicle loan. Lots of people have the good fortune of their parents financing a car for them, so if this is you, ask to get on that loan! Every month that the payment is made on time is another uptick on your credit report, which means your credit is being built even though it might not be you paying the bill each month. If you’re on your own, then hope is not lost. Buy a car that requires a payment be made each month. This is one of the quickest ways to build credit aside from getting a credit card.
Following this simple guideline will get you to good credit in as little as six months!