Establishing credit

[smellincoffee]

I'm 28 years old and have never used a credit card. My parents were always concerned about money as I grew up, so I've always been very suspicious of them; I save and wait for larger purchases. The only exception is the college loans I took out, which I am steadily paying off with an eye toward fulfilling them early. Right now my parents and I live together, and I say it that way because I'm not a moocher. I buy a lot of their groceries and pay some of their bills. But I'd like to have an apartment, and even a home one day, and I know to get those I'll have to establish a good credit rating. So: how do you do that? My bank teller is constantly asking me to consider opening a line of credit, and she's mentioned the possibility of a secured credit card for people who haven't established a rating yet. How effective would making small purchases with a credit card, then immediately paying the balance, be at building my rating? What kind of rate rise might I expect from such an approach if I did it once a month or so over the course of a year?

(The approach isn't particularly attractive to me, because credit cards just seem dirty...plus, being an aspiring minimalist, I don't buy much at all. :laff:)

[iris lilies]

It sounds as though you are disciplined with money. Credit cards work well for the disciplined. I don't know how quickly you can build a good credit rating by doing small purchases as you describe. But it wouldn't be a BAD credit rating that you build up, right? I don't know.

I"ll bet there is some advice on this out there on the web somewhere, authoritative advice.

[catherine]

Using the card in the way you describe is a great way to build credit. Creditors like to see consistent, responsible use of the card. I don't know how long it will take you to build up credit--that seems to be kind of random. My son got a secured card and used it just for the purpose of building a credit history, but that was about 2-3 years ago and only a few weeks ago got his security deposit back from the card and he also just qualified for the first time for another credit card. However, about a year ago he bought a car and financed it, and I think that paying it on time also went a long way to establishing his credit history--not that you'd want to finance a car just for that purpose.

[ToomuchStuff]

How can you have a student loan and not have credit? Don't they report your payment (on time, late, etc) to the credit bureau's?

[libby]

With student loans the credit goes to the parents or whoever co-signs. I always thought that wasn't very fair.

[iris lilies]

With student loans the credit goes to the parents or whoever co-signs. I always thought that wasn't very fair.

I didn't know that. That IS silly. Someone who is carefully paying back loans needs to be recognized for exercising that careful responsibility.

[jennipurrr]

With student loans the credit goes to the parents or whoever co-signs. I always thought that wasn't very fair.

This is not exactly accurate. The loans will appear on both credit reports (cosignor and applicant). Also, if it is a federal loan, it likely did not require a cosignor.

If you have some credit history from the loans, etc you should be able to get a small unsecured credit card. I would use that to buy something like gasoline with and then just pay it off every month.

[SteveinMN]

Credit-card companies not only want to see you pay your bills on time, they want to see you pay amounts over time. You certainly can build a decent/non-negative credit score by just charging some items and paying the entire bill when it arrives. But that does not show that you can pay consistently on a purchase over a period of time -- like a car, a boat, or a house. Now, that doesn't mean you have to go out and buy stuff. You could, for example, use a charge card the next time you take your car to the mechanic for service and then pay off the charge over three or four months. Yes, that will incur interest charges. But pretty much any other longer-term purchase will, as well, so the CC companies want to see that you can handle that. At least these should be minimal and will serve in building your credit rating.

[ApatheticNoMore]

But that does not show that you can pay consistently on a purchase over a period of time -- like a car, a boat, or a house. Now, that doesn't mean you have to go out and buy stuff. You could, for example, use a charge card the next time you take your car to the mechanic for service and then pay off the charge over three or four months.

I guess I'm a bad credit risk then. I've never had any form of long term credit (just short term - no interest - except when I forgot a payment - doh).

[jp1]

Is it difficult today to get a first credit card? Back in 1990 right after I graduated from college with absolutely no credit experience (not even student loans) I got an offer from Chase for an unsecured card, which I applied for and got. It had a small (maybe $600?) limit. I used it for things I'd buy anyway like gas and groceries and car repairs and paid it off most months, or at least a good chunk of it (since my takehome pay was only $313/week and I had a $500 rent bill and a car that needed a lot of repairs I carried a balance a few times, but always paid well above the minimum.) Before long I had more credit card offers than I could count. I've never had any sort of longterm loan like a car or house, but the last time I saw my credit score it was very high (780 or so).

Before applying for a credit card I'd suggest that the OP go to annualcreditreport.com (I think that's the site) and get copies of their credit reports from the big 3 reporting agencies. They're free annually and it'd be good to make sure that they haven't been victims of identity fraud that might have unknowingly damaged their credit rating. From the post it sounds like the only thing that will be on them is the student loans, but that alone should be enough for them to at least have some sort of credit report from the agencies.

[pony mom]

For many years I had a credit card and never carried a balance--I always paid it off in full. From what I understand, I have no credit history because of this. People tell me to use it for a big purchase and pay it off little by little to have a history. I never wanted to do this and pay the interest. My credit card was cancelled a few years ago by the cc company. Now I only have a debit card.

I would often try to get another credit card when I had the one I was using, but I was always denied because of having no credit history. I suppose they make more money off of people who can't pay in full and carry a balance. Even getting one through my bank, which has all my money, didn't work.

[ToomuchStuff]

As far as I can tell, we are still waiting for the original poster to chime back in. WHAT do you need the credit rating for? I have definitely been laughed at by some friends, because they couldn't believe I was only at such a low limit on my CC, but I am not a big credit user. I don't get the whole, have access to $50k on this card, or (as another poster did), go $70k in debt thing. My house, vehicles, everything is paid off, and I have on paper, maybe $8k of available credit. Not sure why I would need more, yet I know I could get a car loan, put a down payment on a house and get a mortgage, etc. if I wanted to be in debt.
This is one area, where DR and I are similar in thought, credit rating, just shows that you like to borrow money.

[SteveinMN]

ToomuchStuff, for better or worse, your credit rating is implicated in any number of non-purchasing activities. If you think you can get a decent mortgage even with a stiff downpayment but without a good credit rating, you haven't applied for one lately. Credit rating also is considered in applying for insurance and even for some jobs (particularly when you work with large sums of money that bad credit risks might consider diverting to themselves).

A good credit rating does show that you borrow money, but you don't have to like doing that and you do have to be able to pay it back successfully. Not everyone is as set in their lives as you seem to be.

[Rogar]

When I went to get a loan to purchase my house a few years ago I was in a similar situation. The only credit card I had was a debit card, which I guess really didn't count. I had paid off my car years before. What the bank wanted was letters from my various utilities saying I had paid on time. Surprisingly this was pretty easy to get. And proof that I had steady employment and a history of income, which I got from my tax filings. I also had a couple of years of cancelled checks from my rent. So basically, I got a bank loan for my house with no credit history and with no interest rate penalty. Probably the fact that I made a generous down payment of maybe 20% also helped.

This was maybe two years before the big financial meltdown, so I don't know if this still would work, but it does seem more relevant that making small purchases on a credit card.

[ApatheticNoMore]

I wonder if car insurance counts as one of those "long term credit" things if you don't pay off the yearly bill all at once? They do charge interest, I haven't paid off this current years, I'm doing it bit by bit, am trying to get rid of it though (probably pay 4 months interest before it's done and I don't have to worry about it again till next year)

[artist]

If the student loans are in your name only, then you are establishing credit already.

[jennipurrr]

I have never paid interest on a credit card, paid it off every month (except one month in 2004 where my mom paid off some of the bill and I paid the other portion for wedding expenses and we miscalculated by a few cents and then the cc charged interest on the "average daily balance"...grrr...but I digress...) and I have had absolutely no problem building up credit history. I had one credit card for aabout 4 years, then bought one financed/used car with no problems at a good rate, then bought a house. My credit score has always come back very high, even when credit was fairly new to me. I have had a checking/savings/cds accounts. Just normal banking stuff.

I have a feeling the banks are putting that info about paying interest out there to scare people into paying more (by being charged interest) more in their interest rather than actual truth. The truth is that credit is WAY easy to get in America. If you use it responsibly it is ridiculous how many credit card offers and loans you can in theory be approved for. DH and I are buying a new home and it still amazes me after all the housing crisis/crash how freely banks lend to people with good credit history.

[clara24]

Credit card are really useful in a lot of ways and you having it seem going to be easy.In Helsinki Finland many people has a credit card and some of them can't manage it some are have debt from some perintätoimisto (http://www.ktcfinland.fi) or debt collection agency which is quite annoying when they are forcing you to pay for your debt.