How does a young person establish a good credit history?
How does a young person establish a good credit history?
A young person, let's say, from age 18 through 21 or more, has NO credit, which is usually interpreted by many companies, such as phone carriers, as BAD credit. How does a young person with absolutely no credit history whatsoever begin to establish a good credit history? Do they start using a credit card? Do they start making payments on a car loan? A house (which is ridiculous)?
Normally, how do people begin to develop their good credit history? By doing what exactly? How did you start to establish your credit? What are the best methods for initiating this long process?
Thanx!
Re: How does a young person establish a good credit history?
One approach that worked 25 years ago, is to buy a consumer item, typically electronics, from a store using the credit facilities offered by the store. The problem with this approach is that it typically requires an "adult" cosigner who has good credit, usually a parent, but make sure that the newbie's social security number is the primary borrower. It also means paying prohibitive interest rates, so don't buy anything very expensive. Then make the payments on time every month.
Re: How does a young person establish a good credit history?
When I wanted to establish credit I went to les schwab tires opened a credit account with them when I bought tires. You could also open an account with like finger hut or apply at a gas stations credit card..Just start applying for credit at dept stores. Make payments regularly and on time!!
Pay a little more than the minimum or pay off at end of month. Most important rule of credit pay off balances end of month!
Good luck.
Quote:
Posted in reply to the post by Edward Mendoza:
How does a young person establish a good credit history?
A young person, let's say, from age 18 through 21 or more, has NO credit, which is usually interpreted by many companies, such as phone carriers, as BAD credit. How does a young person with absolutely no credit history whatsoever begin to establish a good credit history? Do they start using a credit card? Do they start making payments on a car loan? A house (which is ridiculous)?...
Re: How does a young person establish a good credit history?
Hi, good question and some people don't know or hesitate to ask.
I am a retired banker (not to proud of that in this day and age) but was an Assistant Vice President at Citibank in New York in the wonderful 80's/90's when banking wasn't quite such a dirty word :-) Glad to be out of it in these times, however the basics are the same and is a necessary evil. I also prefer credit unions to banks as I later worked for IBM Credit Union, much more flexible and customer friendly and you have a better chance to get to know your banker. You are a member and is not-for-profit to shareholders but to their members, which results in better rates and less fees.
The best way to establish initially or even re-establish credit after a bankruptcy is to take at least $1,000 or however much you have (the more the better) and put it in a savings/money market/CD and then take out a secured loan or credit card against it at the same bank or credit union that you deposited it in for the same amount. Make your small monthly minimum payments on it for as long a time as the loan is, should be at least a year. What that does is show that you can make monthly payments on time and will begin a good credit history, as that is all that good credit is.....make your payments on time each month and show that you can do it for an established period of time....no need to pay more than the minimum, just make those regular payments on a regular basis to build up your credit and show that you can do it.
Of course, there will be interest on the loan, but that is the price you pay to establish if you need it. Used to be the interest you earned on the savings/money market/CD that secured it would help offset, but not too much anymore.
Secured loans or credit cards are the way for the financial institution to safely take the risk on no credit history or bad credit history and help you build/rebuild your credit, as they have no risk if you default as they will just take your secured cash and if you don't default you can establish that you are credit-worthy. It may take a bit of time, but is how I always counseled people to do it.
The other way is to have a good creditor co-sign with you on a loan or card, but then you are taking the risk if you co-sign and are liable if the person bails and doesn't make their payments on time.
I always recommend the first option, as it helps the person to be more responsible as it is their money they are using as collateral and they will be more apt to make the payments.
Just a little finance 101, hope it helps!
Quote:
Posted in reply to the post by Edward Mendoza:
How does a young person establish a good credit history?
A young person, let's say, from age 18 through 21 or more, has NO credit, which is usually interpreted by many companies, such as phone carriers, as BAD credit. How does a young person with absolutely no credit history whatsoever begin to establish a good credit history? Do they start using a credit card? Do they start making payments on a car loan? A house (which is ridiculous)?...
Re: How does a young person establish a good credit history?
With a secured c.c. the individual also has the option of paying in full on a monthly basis, thereby both promoting a higher level of activity and avoiding any interest, although incurring at least some interest would make them a more desirable customer.
Put as little as 500 or 1000 in the savings acct., use the card frequently, pay religiously and in about a year they'll begin extending the line, unsecured.
Re: How does a young person establish a good credit history?
First of all, it's important to be gainfully employed. I think the best process is to apply for a credit card with a modest credit limit. Use the card on a regular basis, but only within your ability to pay the balance off every month. This way you won't incur any interest charges and, in time, the bank will increase your credit limit. As long as you stay within your credit limits and pay the balance off each month, you will continue to build your credit score.
Re: How does a young person establish a good credit history?
I think it is a given and pretty much common sense that without a job or proof of income, even a secured credit card or loan will not be approved!
As far as credit score is concerned paying it off in full or early has no effect. All that is taken into consideration is that it is paid on time with the amount that is due and that you can maintain that over a period of time. Of course, you do save interest by paying in full and is the smart thing to do. But, to achieve a credit score overpaying or paying in full doesn't factor in, being late or not paying what is due is what gets people in trouble.
Also, it is best to avoid the store cards if you can, like the tire company, Macy's, etc. as they charge exorbitant interest and is easy to end up paying more in interest over time than what you may have purchased on them at a "bargain" if you can't afford to pay in full each month.
Also, many a co-signer trying to help someone in good faith has ended up ruining their credit when the person they co-signed for did not make their payments, so something else to beware of!
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Posted in reply to the post by BobHeisler:
First of all, it's important to be gainfully employed. I think the best process is to apply for a credit card with a modest credit limit. Use the card on a regular basis, but only within your ability to pay the balance off every month. This way you won't incur any interest charges and, in time, the bank will increase your credit limit. As long as you stay within your credit limits and pay the balance off each month, you will continue to build your credit score.
Re: How does a young person establish a good credit history?
I am incredulous that the question "is CREDIT a good idea?" does not get covered here.
"Join the Money Gamblers dilemma" might be a better title
Re: How does a young person establish a good credit history?
My daughter worked for a year or so,between and during school, then started with applications to dept stores (easier to get) and there are also student credit cards where if you show you will pay on time for 6 months or so, they raise your limit and there you go.
Quote:
Posted in reply to the post by Edward Mendoza:
How does a young person establish a good credit history?
