Friday, November 19, 2010

Credit before credit ...?

Hey! I am turning 18 soon and I am seriously considering making some life-changing moves (such as getting a car, moving, etc...). I have a job and stuff already, one that pays pretty well, but I have no clue how to start securing a good credit score. I have lived with my parents (obviously) and have had first-hand experience as to what poor credit can do and I really dont want to end up like that ... So, I want to know what I can do to make sure I dont get screwed over later on in my life. Do I have to get a credit card? Do I need to put just like a couple hundred dollars on the credit card? How long does it take to get good credit? And lastly: I plan on being VERY diligent about paying my credit, so I really want to know what it is I need to do to to get my good credit.

Thanks a lot!

-Mr. BobCredit before credit ...?
Most people who have started using some sort of debt probably had every intention of paying it back diligently. However, life happens. A loss of a job; illness; unexpected expenses. When life happens (and it will happen) the LAST thing you want to worry about is having to make payments on a car or on a credit card.

You have probably heard from everything that you have to start establishing some sort of credit in order to get ahead. This is not always the case. Most lenders do only look at a FICO score in order to determine if they should lend you money. However, with a lot of individuals having incorrect information on their report that brings their score down, this is hardly the end-all-be-all method for determining your ability to pay money back.

What I would encourage you to do is to save up your own money and use that for your purchases. You say that you have a good paying job. Make the most of that income. You might want to try and save up maybe $2,000-$4,000 for your car. That way you would have a decent, reliable automobile WITHOUT a car payment. You will also want to try and save up money for an apartment as well. Paying your utilities and rent early or on time, as well as being at your job for two or more years, are all excellent indicators of your ability to pay. And lenders that do their own underwriting (which is what most did prior to using the FICO score) can look at that kind of payment history to determine whether or not they will lend you money.

So do yourself a favor and try to steer clear of debt if you can.Credit before credit ...?
A good way to build credit is to borrow money and then diligently pay it back on time. Credit cards are an expensive way to do this, so I would avoid them. Borrow money to buy a car, which is something you NEED anyway, so that is a good option. Also buying a small condo, even a studio or 1 bedroom is a good way to borrow money, pay it back and avoid useless debt like credit cards. You can always upgrade later to a bigger place later on, and with a good credit history for your car and smaller condo, you'll be in good shape to buy a house later on. Autos and real estate are your safest bets to build credit and avoid getting in over your head with useless debt, which is why a lot of people end up with bad credit. Good luck to you.
first you need to establish some credit. You will need yo be 18 to sign a legal contract for a credit card or a loan. there is no shortage or companies willing to take a chance on you with a small intro crefit card. Second you need to use the card some and establish take you can make the payments on time. Real high credit scores come from having a long history of paying all of your debts on time. So it takes a awile to get really good.

Before you make a move like having your own place make sure you look into the total cost of doing that. Rent, power , water, trash pick up, tv cable,internet access, buting your own food and providing your own entertainment.

No one wants to get bad credit, often, they just make bad decisions and get in over their head then have no choice
A car loan will be your best bet to start. I would not take on rent, a car, a few credit cards right out of the gate. Get the car, stay at home for a bit to make sure you are able to handle the payments. Keep putting money away!! Get a low limit credit card or two, keep the balances below 50% or your credit limit.

In order to eventually buy a home you will need 3 tradelines (3 lines of some type of credit that reports on your credit bureau).

By paying on time and keeping your balances low, this will greatly increase your score. Don't over extend yourself!! Don't go out and buy a Navigator or anything something affordable for you, keep it a few years and trade in.
Yes, in order to get good credit you need a credit card. That is one of the flaws I see with the system. The credit companies only report credit reported to them by their members. Meaning most business are members of on of the big three...Trans Union, Experian, Equifax. So let's say you rented a house from someone who was not a paying member of one of the big three. He would have no way to report your good credit history with them. That I feel is wrong. They kind of have no real interest in making it fair to you. They basically create a mathmatical formula to determine if you have good credit. If you go your whole life paying off everything in cash and never borrow, well that makes you trustworth and responsible, but does not give you good credit. In order to get good credit ';they'; say you need to get a credit card, use it regularly, pay on time, get a loan if needed and pay it on time to. Having open available credit lines is good also. Don't fill one card up then go to another one as that looks like you are desperate for money. Too many credit card requests also looks bad too. So it is a slow process. They want to see that you can charge up and pay off a balance of like 60% of your card limit and then pay it off. That is what prompt the credit card companies to offer higher limits in the hope you will charge more, then have to carry the balance with them for a while. I personally screwed up my own credit when I was young thinking I could charge up a lot then pay it off. I got like a lot of people and tried to shift balances around and one thing leads to another, and I had trouble making the payments. My credit really took a beating. I was able to eventually pay off every penny I owed. But even so it too me years to rebuild it. If anything you ever do in life, keeping your good credit is the most important thing you can do. Charge only what you need. That sounds easy, but it is not. Becuase once it is messed up, it is so hard to get fixed. If you mess it up at your age, it can take til your in your late 20s to fix. And at that point you'll be out of college and probably trying to get into your own house. You will take a beating on all those things...and trust me, they will chew you up for it too. It is basically the difference of starting out your adult life on the correct foot or not. It is a rough road, I can tell you that.
First of all there is a difference between bad credit and no credit.

Most people believe that they need a high fico score to make it in todays world. Not true.

They get credit cards and take out loans to get a high score. Then next thing they know they can't pay them back. Now they have ';bad credit';.

That hurts.

If you pay as you go. If you live on less than you make you will have money.

Save up for a cash car. You will never get ahead financially making car payments.

No payments = cash in the bank,

The only time you might have to borrow money is for a home. You can do that without a fico score. It's called manual underwriting. It's not a sub prime loan. It's the way it used to be done before the fico score. You can get the lowest interest rates available.

No comments:

Post a Comment