Best way to build credit?

[Jester]

Why build credit? Don't know if you've heard of a guy named Dave Ramsey or not, but he suggests actually getting out of debt, staying out of debt, and NOT using credit.

Well, since you asked, I'll tell you.

While I have no interest in buying a home, I do want to build my credit so I can get an actual unsecured untethered-to-a-bank-account credit card. And because, while the current Jestermobile is awesome, at some point in the future, I will have to replace it.

But why do I want a credit card? Call it looking towards the future. Things happen, emergencies pop up, and at those times, it is convenient to have something like a credit card. What sort of things? Well, all kinds of things, but if you want specifics, I will point out that I have two parents who are getting older that live on the opposite of the continent, and I worry about them. I also worry about my stepsister, who lives in the same city in a care facility. While I do plan on moving back there, even when I am back three things may happen that I need to act upon quickly.

And I have no plans of running up all kinds of stupid charges on that credit card, or of living in debt. But, as is often the case, I feel it's better to have one and not need it than to need one and not have it. I am not familiar with Dave Ramsey or his suggestions, but I have my reasons for doing things, and if his ideas are counter to that, well, so be it. He doesn't have to live my life. I do.

[taxguykarl]

First check on your credit use AnnualCreditReport (not the one with the singing doofus, FreeCreditReport or Score or something like that). This one is actually free. CreditKarma gives a reasonably good estimate of your FICO score. My credit card issuer recently added real FICO's to their services. Karma was within 10% of the real FICO, so use that rather than pay for any monitoring service. Remember almost every other credit report has inaccuracies.

Once you acquire your credit reports, dispute all the baddies. From your OP, it sounds like you can use outdated, please delete reason for dispute. Also dispute anything that looks unfamiliar.

If you don't want to go the secured card route, try a store card as your stepping stone. Just make a small purchase and pay it off with the next statement. Ideally, pay your credit cards (or at least make a payment) when you get paid be it weekly, bi-weekly or monthly. Keep your balances low (under 10% of the credit limit).

Here are some articles

Here's another forum for that topic.

Space out your new credit applications. If you are going for an auto loan try to submit all the applications within two weeks--credit scorers know to spot that as shopping (I speak from experience when we re-fi'ed our mortgage).

It almost sounds like time has given you a blank slate.

[Gerrinson]

Just curious, but what could get someone denied for a SECURED credit card?

Oh, it's not that hard. I had a Capital One rep tell me that with my credit they would never, ever offer me a credit card - even a secured card. I did ask that they take me off all their mailing & telemarketing lists, since they kept sending me offers for which I clearly didn't qualify.

I also immediately went to my bank to find out why my credit score was so atrocious. At the bank, they were shocked by the Capital One response, immediately signed me up for an unsecured credit card, and let me know that with them I qualified for up to $250,000 in credit for a home loan. Why Capital One wasn't interested in my business at all, I have no idea.

On the bright side, it has now been more than a decade since I've received any phone, email, or snail mail credit card offers from Capital One.

[taxguykarl]

Oh, it's not that hard. I had a Capital One rep tell me that with my credit they would never, ever offer me a credit card - even a secured card.
...
At the bank, they were shocked by the Capital One response, immediately signed me up for an unsecured credit card, and let me know that with them I qualified for up to $250,000 in credit for a home loan. Why Capital One wasn't interested in my business at all, I have no idea.

Sounds like Cap One and your local bank relied on two different credit reporting agencies and/or scoring algorithms. Your bank sounds like a keeper. We know what's not in your wallet.

[Sapphire Silk]

Why build credit? Don't know if you've heard of a guy named Dave Ramsey or not, but he suggests actually getting out of debt, staying out of debt, and NOT using credit.

MOST of the stuff you're going to buy, you can buy outright with cash. I don't think I've purchased ANYTHING on credit in a good 5 years or more.

What Dave Ramsey says is terrible advice. It can hurt you in the long run.

You can't buy a house without credit. You'll get terrible terms for a car, if you can buy one at all. You may even have a hard time renting an apartment, unless you like living in a slumlord's rathole.

You have to have a lot of cash on hand to use a debit card to rent a hotel room, because of the way they put holds on your funds to pay for the room. These holds stack over time; actually caused me to overdraft once even though I had the full amount for the length of my stay available on the card. Pissed me off royally.

The last straw for me was not being able to use a debit card to rent a car anymore. I used to be able to use one by paying a deposit. Now none of the agencies will do it.

Now granted, I managed to buy both a house and a car without a credit card. But I'm paying more in interest than I should for both. In other words, it's more expensive for me.

So when I went overseas a couple of years ago, I was able to get an unsecured credit card from my credit union. Four years of spotless payments on my house and car, and they were willing to give me unsecured credit. I've kept that card; having it is helping my credit score improve.

I still pay cash for pretty much every thing. But I can do a lot of things now that I couldn't do a couple of years ago, so it's actually a relief to have one.

[KhirasHY]

I still pay cash for pretty much every thing. But I can do a lot of things now that I couldn't do a couple of years ago, so it's actually a relief to have one.

That's really what it boils down to for most credit cards. The people you hear about who have nightmare debt with CCs usually did something to really earn it, and I've met quite a few. I'm talking about people who get a card, hear "$3,000 a month limit", and feel like they should just go on a shopping spree until they hit it because, hey, $3000 a month! It's like free money!! /facepalm

I do have a credit card...99% of the time, I use it on bare essentials: food at the store, and gas. I don't take it to pricy restaurants, I don't use it at the movies, I don't buy $500 in video games at Best Buy with it...those are all cash/debit card purchases. But if I buy food, buy gas, or stay at a hotel/rent a car, I brush the dust off the old boy. And my credit is sparkling, you could eat off it (but I won't let you, because that would be weird before the 6th date where all the weird Japanese fetishes are ok...wait, what?). Getting a CC is good...using it for any and everything? Not so much.

[Jester]

So far I have made three purchases with it, totaling a bit under $130, which I can instantly pay off by the due date. Hell, I could pay it off right this second without blinking or dipping into savings. Two expenditures that are normal for me and that I would I normally pay in cash (bar tabs), and a pair of new sneakers that I needed and could afford. Well below my limit, easy to pay off.

[Food Lady]

Jester, thanks for posting this. I feel like I might be denied a secured card, but I feel I should try. I think I did get an offer for one from one of my banks, actually.

[BlaqueKatt]

Why build credit? Don't know if you've heard of a guy named Dave Ramsey or not, but he suggests actually getting out of debt, staying out of debt, and NOT using credit.

MOST of the stuff you're going to buy, you can buy outright with cash. I don't think I've purchased ANYTHING on credit in a good 5 years or more.

When my cat got sick and NEEDED emergency treatment I didn't happen to have an extra $900 just lying around. Also here in NJ you can't get an apartment without a credit check, so unless you have the cash for a house, no credit=enjoy living in your car forever.

[Food Lady]

^ This. If I had money coming in from my book sales, speaking engagements, and radio program, I could live totally without credit.

[Jester]

Whatever some of you may think of credit, at this point in my life, I need to build my credit. It's just that simple. So can we please focus on the best ways for me to go about achieving that, and not your opinions of credit in general? If you want to discuss the pros and cons of credit, feel free to start your own thread about it. That is not the purpose of this thread.

Thank you.

[Jester]

UPDATE!

So I've been using the secured credit card, and the last couple months, I've actually had a higher balance on it than I would have preferred, and have been making the minimum payments, due to business being somewhat slow over the summer.

Also, for my recently purchased scooter, I took out a small loan of $1,000, most (but not all) of which went to the purchase of said scooter and the retitling thereof.

The upshot of all this is during the loan application process, I found out my credit score is now 746! Which even my dumb ass knows is pretty damn good. Also, the loan will help me build even more credit. All of which will help me achieve my goal of finally having a "real" credit card, i.e., an unsecured non-debit card credit card. Not that I'm gonna go crazy with said card. That would be stupid, and would land me back in my old land of Bad Creditistan. But it would be nice to have one for emergencies or what not.

So I'm pretty happy with all this, and based on the talk I had with the bank manager during the loan application process, who suggested I let the loan run at least six months to its full year run, rather than paying it off as soon as possible, as I had originally intended, I figure January would be a good time to start applying for that aforementioned "real" credit card.

Life is good. I hope all of you are getting equally good news in your various pursuits.

[Sapphire Silk]

Wow! That really is a good credit score, Jester! Congratulations. It's actually higher than mine (I have a high debt to income ratio because of my mortgage and my car payments, and my student loan debt).

Paying the loan off over time establishes a history of paying your bills on time, which is probably why you got the advice you did. For you, that's good advice.

After you get your unsecured card, keep it paid up so the interest rates don't eat you alive. Even with your good score, with a limited credit history you still may not get the best rates. I got my card with a credit union (I'm a member there, and that's where my house and car loans are), so I have a good interest rate on my card. Shop around for the best deals; don't accept a high interest rate just to get an unsecured card. It's not worth it. I did that, and it didn't help my score at all. Other things I did, like paying down my other debts, helped more.

Which reminds me; this is the time of year I usually check my credit reports to see what my scores actually are

[Jester]

Wow! That really is a good credit score, Jester! Congratulations. It's actually higher than mine (I have a high debt to income ratio because of my mortgage and my car payments, and my student loan debt).

My truck is paid off and I've never had a mortgage, as I'm a renter.

Paying the loan off over time establishes a history of paying your bills on time, which is probably why you got the advice you did.

Pretty much.

After you get your unsecured card, keep it paid up so the interest rates don't eat you alive. Even with your good score, with a limited credit history you still may not get the best rates. I got my card with a credit union (I'm a member there, and that's where my house and car loans are), so I have a good interest rate on my card.

I plan on applying for the unsecured credit card with my credit union, assuming the rates are reasonable.

[Sapphire Silk]

I rented for a very long time myself. Buying is a very personal decision and depends on your goals.

Studies have shown that people who own accumulate more wealth over their lives than those who don't. That's important for me since I'm nearly 50; I have very little in the way of retirement savings (I'm trying to catch up after years of blowing my money) and owning a house outright would give me a place to live without having to use my SS/pension/403b checks (which will all be very small) to pay for housing expenses. When I need to move into assisted living or a nursing home, selling will help me pay for some place decent.

But buying isn't for everyone. It costs money to maintain a house; I should have replaced my air conditioner three years ago, but I can't afford to do it so I do little repairs to keep it limping along as long as I can. I replaced my roof, insulation in the crawl space (infested with rodents), almost all the flooring in the house, and had to paint the exterior. That cost money. I was able to save by doing some of the work myself (flooring) but the rest I had to hire a contractor for. Yes, it built equity but equity isn't cash, and I'm not foolish enough to get a home equity loan when I'm able to pay my bills by moonlighting.

Remember, I told you that the advice you got on the loan was good advice? I meant it; it is. For you. For me, it would not be good advice. I have a solid history of making payments on time. What I need to do is lower my debt to income ratio to improve my credit score. I'm close to doing that: I'm going to pay off my car at the end of this month, assuming no crisis comes up, which is two months early. It won't save me much in interest because I'm mostly paying principal right now, but that's two months of not needing extra income that I'll have. Then I can start paying off other debts. That'll reduce the debt to income ratio and my score will get better. Best of all, I can refinance my house; a lower house payment will reduce that ratio as well.

I don't think you'll find better rates than at a credit union. Since they work for their members, not a corporate board, they can usually offer the best deals and they're not the fuck you over deals the big banks offer.