Got my first credit card, how do I build credit?

[Mousse]

Credit Score goes from 500-860. This method 'may' give you a 810 rather than an 805 when you're 25. So you pay a few dollars of interest EVERY month for 7 years for 5 points when all you needed was a 720 to get a new home.

In the US, the FICO (Fair Issac Corporation and the one most commonly used by the mortgage industry) ranges from 300 - 850. I didn't know my credit score until I applied for a mortgage a month a go. I knew I had a pretty good score, since I've got a spotless 13 year credit history -- no late payments...ever. I've always pay in full before the due date. I finally learned my score after applying for a home loan ... 830.

A credit score above 760 will get you the lowest rates (~5.78%), 700-759 (~6%), 660-699 (~6.3%), 620-659 (~7%), 580-619(~8.5%), 500-579(~9.5%). Below 500 that fat chance of getting a mortgage loan. How much does a few points of interest makes? A $100K loan paid over 30 years, the difference between highest ($302K paid) and lowest ($201K) is $91K. Ninety-one grand more for the same thing, because of bad credit.

The bottom line, if you want good credit. Pay on time, every time. A few late payments won't hurt your score, but not paying a debt (even a $20 one) will do to your credit score what John Rambo did to the Burmese Infantry battalion.

 

[ayeying]

Im not sure if this is answered or not, but when is the first time you should check your credit score? Like the sites for free credit reports. I know you can do that once a year but when is the first time you should check? I got my credit card about a year ago and I've paid every bill on time and such, so I kinda wanna look up what my credit score is and hope nothing screws it up?

 

[GSMiller]

I've read advice on the Consumerist that says you should pay the minimum on the due date and then pay the remainder during the grace period.

Does this sound...sound?

That'd probably work with some cards but my Bank of America card will only allow you to make one payment within a month, while my Sears card (through Citi) will let you to make as many payments you wish during the month.

 

[Gelfin]

Im not sure if this is answered or not, but when is the first time you should check your credit score? Like the sites for free credit reports. I know you can do that once a year but when is the first time you should check? I got my credit card about a year ago and I've paid every bill on time and such, so I kinda wanna look up what my credit score is and hope nothing screws it up?

Anytime is fine. You can pull your own credit report for personal information without impacting your credit rating. It is only when prospective lenders pull your report for purposes of extending credit that the score might be impacted.

I note you said sites for getting credit report. It's important to understand that the only site you should use is AnnualCreditReport.com. This is the official site for obtaining the credit reports the federal government requires the credit bureaus to supply you for free. You are entitled to one per year from each of the three agencies. Many people spread their three requests out over the year so they can get an overview.

Other sites claiming to offer "free credit reports" are not associated with this program, and provide credit reports with strings attached, such as signing up for expensive and mostly useless "credit monitoring" services that you will later find very difficult to cancel.

Note that the annual credit reports do not contain your FICO score by default. That is a for-pay option on top of the free reports. The free reports, however, are perfectly adequate for monitoring the health and accuracy of your credit reports. You don't really need to know your FICO score unless you're about to go shopping for a house. As long as the reports look good, you keep on top of all your bills and your debt-to-credit ratio is low, your FICO score will be respectable.

 

[weaverra]

Why not ditch the whole credit card thing and "building" credit junk that has been shoved down the throats of American's for years. Just take a look at who you building your credit really helps. That would be the credit card companies and the companies of which you buy the products from with the credit card. Affording something is being able to buy it without it affecting you financially, not being able to meet the monthly payments. Many people that have credit cards spend more money in one year than they make. Than is not cool. If you have the cash then pay for it don't charge it, but on the other hand make sure you can meet your monthly obligations. You don't go wrecking you credit as it could affect where you get a job. Concentrate on saving money and living debt free. It's a lot less headache knowing something is paid for rather than worrying "am I going to be able to pay the credit card bills for this month?" Did you know that having a credit card with a ZERO or low balance when applying for a home loan could hurt you. Your a disaster waiting to happen. If a mortgage underwriter is doing his job he WILL count that against you. What ends up happing is you go out and buying curtains, furniture and new wallpaper. When you spend cash it hurts more and you wind up keeping more of YOUR money rather than swiping a credit or debit card.

 

[hobbbz]

Why not ditch the whole credit card thing and "building" credit junk that has been shoved down the throats of American's for years. Just take a look at who you building your credit really helps. That would be the credit card companies and the companies of which you buy the products from with the credit card. Affording something is being able to buy it without it affecting you financially, not being able to meet the monthly payments. Many people that have credit cards spend more money in one year than they make. Than is not cool. If you have the cash then pay for it don't charge it, but on the other hand make sure you can meet your monthly obligations. You don't go wrecking you credit as it could affect where you get a job. Concentrate on saving money and living debt free. It's a lot less headache knowing something is paid for rather than worrying "am I going to be able to pay the credit card bills for this month?" Did you know that having a credit card with a ZERO or low balance when applying for a home loan could hurt you. Your a disaster waiting to happen. If a mortgage underwriter is doing his job he WILL count that against you. What ends up happing is you go out and buying curtains, furniture and new wallpaper. When you spend cash it hurts more and you wind up keeping more of YOUR money rather than swiping a credit or debit card.

I'm not trying to justify living a lifestyle outside of my means, but as it is I have bad/low credit. I need to build credit if I want to own a home before I'm 30. That has nothing to do with buying things on credit.

Many house payments are lower than what I pay in rent and of course I earn no equity.

 

[mdeanoly]

iphone all the way man

BUY AN IPHONE 3G, twice the speed and half the price!

Just kidding. I don't know, i have a debit card..

 

[benmrii]

Honestly, the best way to build good credit is to put every purchase and bill that you can on the your credit card and pay it off completely every month.

 

[gadgetgirl85]

I'm having a lot of trouble getting a CC

 

[weaverra]

I'm not trying to justify living a lifestyle outside of my means, but as it is I have bad/low credit. I need to build credit if I want to own a home before I'm 30. That has nothing to do with buying things on credit.

Many house payments are lower than what I pay in rent and of course I earn no equity.

How old are you?

 

[MacGromit]

Ironically, if you allow a balance to carry for one month, and thus incur some interest, this will give you a better credit rating. But, generally speaking, pay within the grace period (20-30 days depending on the card, pay attention to this) and you won't have to pay interest. A credit card is great, but be careful, running it up to the limit or opening additional cards is a great way to dig yourself a rather deep hole. So, use it only what you could pay off easily in a month.

Good advice. Basically, you need to hawk it with online access and keep a close, close eye on it -- especially now that you don't have much history to offset any mistakes.

Although this may seem counter-intuitive, I would strongly recommend keeping this credit card open the rest of your life. Unless it has an annual fee. If it's a no fee card, just keep it open using it once in a while.

Because credit is based on how long you've developed your good history and history is counted to your credit much more for old BUT OPEN credit lines... I would keep it forever.

I worked once with a guy that had a gas card open from 30 years ago. It did wonders for his credit scoring.

Many people close their accounts in anticipation for a big loan (buying a house, boat, etc) and end up cutting their own throats as moves like that will make your hard earned credit score actually drop.

Basically, credit is based on:

-how long you've had good pay history
-how extended you are (current balance versus high credit limit)
-if you've been able to avoid late payments or missed payments
-avoiding stuff like unpaid medical bills or even library books on a rare occasion
-number of credit lines
-how much total debt you've accumulated (less is more)
-whether you like cats or dogs more (dogs score you more points than cats)

Just kidding about the last one.


Just pay your payments on time and don't get into the trap of just paying off the minimum payment. avoid carrying balances if at all possible, might cost you a few points of credit score but it's safer and wiser.

 

[CalBoy]

I worked once with a guy that had a gas card open from 30 years ago. It did wonders for his credit scoring.

Of course you don't know the precise extent to which that particular gas card actually helped him; it may have been 30 years of diligent payments that earned him a wonderful credit score.

avoid carrying balances if at all possible, might cost you a few points of credit score but it's safer and wiser.

On the contrary, not carrying a balance will only help, not hurt, your credit score. The debt:credit ratio is crucial in a FICO, and keeping a balance only hurts that ratio for you.

 

[zim]

Cancel! No CC with a fee is worth it. Open a bank account and get a Debit/Credit Card and only spend the money that you actually have.

 

[hobbbz]

How old are you?

25

 

[Gelfin]

Canceling this high-fee card and getting a no-fee card is good advice, but I am afraid it might be good advice from two years ago. The subprime crisis has made all lenders very skittish. The amount of free bird cage liner I receive from credit card companies these days isn't a third what it was a year ago, and I'm an excellent risk.

For sure shop around, and as soon as you find something cheaper, take it, because that monthly fee is brutal, but people who have just assumed you can step up without a credit history and get a no-fee card just for the asking might be off the mark these days.