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Establishing Credit

 
 
Reply Tue 30 Dec, 2003 01:26 pm
I am no fan of credit. I like to owe no man.

Yet for so many reasons I need to have a good credit rating. Heck I can't even get a decent phone plan because I have no credit history.

For a long time I was caught in the chicken/egg dance of no credit = we won't give you credit but then out of the blue I was offered a credit card (by Capital One).

The initial limit is a joke ($200) and I can't even put my cheapest server on the credit card.

So to build up my credit I am purchasing things I'd normally pay cash for with my credit card.

Now because I don't like to owe anything I usually immediately pay off the charge, even before the month is over (seriously, I was paying it as soon as I got home each day).

Then I realized that by paying it off I might not be building credit history.

So now I don't mind waiting for the statement to be issued. But then I wondered if I actually have to allow some of the payments to actually be financed (e.g. pay it off slowly and incur a finance charge) to build a lil' credit history.

I'm getting conflicting statements about this. Some think as long as it goes on my balance I can still pay it off within my grace period and build credit history. Others think it actually needs to incur financing charges.

Does anyone out there have the straight dope on this?
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Type: Discussion • Score: 1 • Views: 3,782 • Replies: 33
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onyxelle
 
  1  
Reply Tue 30 Dec, 2003 01:39 pm
I have been counseled by various credit counselors. My credit rating is rising now because of this:

like you're doing, buy the things you normally pay for with cash, keep the balance below 50% and above 0 dollars.

pay the card off monthly.

it is working for me. Trust me....college was a credit disaster for me.
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Dartagnan
 
  1  
Reply Tue 30 Dec, 2003 01:39 pm
You don't have to owe a balance (and pay interest) to create a good credit history. At least that was my experience back when I was in the position you're in now. The key was to make payments on time. I suppose it wouldn't hurt your record to pay some interest, but I wouldn't advise doing it if you don't have to.
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Craven de Kere
 
  1  
Reply Tue 30 Dec, 2003 01:54 pm
Hmm. See this is where it all gets tricky. I don't need to finance anything. I just want credit. And I don't know if paying the entire amount on time (which is easy) is better than leaving some to be financed.

I'll try to get a human on the other end of the capital one line and see what they say.

If I keep getting conflicting info I'll just flip a coin.
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Craven de Kere
 
  1  
Reply Tue 30 Dec, 2003 02:11 pm
Well I called Capital One and after navigating their idiotic phone system I got a human on the line.

She told me that no matter when I pay the bill it will build my credit. So I guess I'll keep paying it off on the same days that I charge anything to it.
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Dartagnan
 
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Reply Tue 30 Dec, 2003 02:15 pm
Assuming there's a grace period, you can wait to pay the bill until before the grace period ends. That way you benefit from the "float." No big deal if you have a small balance, but it's more efficient than paying your bill as soon as you charge something with the card. (Actually, I'm not even sure I understand how you do that. How can you pay the bill before you even receive it in the mail?)
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Phoenix32890
 
  1  
Reply Tue 30 Dec, 2003 02:19 pm
Craven- In my entire lifetime, I have always paid my credit card bills within the grace period. I have never paid a cent in interest.

You say that paying off monthly does not develop a credit history. So how come, every once in awhile, I get a notice that the one of the credit card companies wants to RAISE my credit limit? Most of the time, I will tell them to leave it just where it is, thank you very much!
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roger
 
  1  
Reply Tue 30 Dec, 2003 02:27 pm
Use the card. Wait for the statement. Pay it immediately. Don't be late - don't be early.
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Craven de Kere
 
  1  
Reply Tue 30 Dec, 2003 02:35 pm
D'artagnan wrote:
Actually, I'm not even sure I understand how you do that. How can you pay the bill before you even receive it in the mail?


I don't use snailmail for anything. Ze internet my friend.

I can buy something on it on one site and pay it off in 5 minutes on the Capital One site. Ain't it grand?

Based on the advice given to me I'll just pay it off when the statements come (or immediately as the Capital One rep said it's all the same).
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Dartagnan
 
  1  
Reply Tue 30 Dec, 2003 02:38 pm
Um, maybe I'm being thick here, but you use the credit card to buy something (on-line I assume), then you go to the Capital One site and pay for it? Perhaps by making an on-line withdrawal from a bank account? I guess that would make sense...
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Slappy Doo Hoo
 
  1  
Reply Tue 30 Dec, 2003 02:43 pm
I don't think it'll make a difference if you pay it right away or wait. It'll show a credit card and limit on yoru credit history. At the same time, having a $200 credit card, while a start, isn't going to really give you "established" credit either(I'm sure you're aware of that). After you have the card for a little bit, you should take a personal loan for a few grand or so, put the money in the bank, then pay it off over 6 months to 1 year. That'll help build up a credit score. If you ever plan on financing a car, or buying a condo/house, you'll need somewhat more credit than a single card without a cosigner.
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Craven de Kere
 
  1  
Reply Tue 30 Dec, 2003 02:56 pm
D'artagnan,

Yep, an online bank transfer.

Slappy,

Boy do I know how little the 200 limit is worth. Thing is, even for something so simply as applying for a credit card my completele lack of credit history is being problematic.

Right now I just want to get at least one record in there and hopefully I can get approved for more credit cards etc.

Financing a house or car is not in my near term future. I'm not sure if I'll even stay in the US for long enough.
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Phoenix32890
 
  1  
Reply Tue 30 Dec, 2003 02:58 pm
With some credit cards you can pay automatically. You give them the # of your checking account, and they debit your account for the amount of the monthly bill. Check the regulations. With some cards, they charge you to pay your bill electronically. Some do, some don't.
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Noddy24
 
  1  
Reply Tue 30 Dec, 2003 03:29 pm
Talk to your bank about establishing a credit line on your debit card.

Your bank may even issue its own credit cards.

Don't pay finance charges unless you absolutely must--but never be late on making your payment and never pay less than the minimum.

Do you know your credit rating? www.freecreditreport.com isn't completly free but for $25 you can get a listing of the information that the three major credit bureaus are carrying on you. I just did this for a financially feckless stepson.

Don't go hog wild on applying for credit--this depresses your credit rating. You might consider opening a charge account with a department store--or taking out a small loan from your bank.

Credit isn't just a temptation, it's a tool.
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Ceili
 
  1  
Reply Tue 30 Dec, 2003 03:34 pm
Craven, your credit rating is also based on your bill payment history ie. gas, electricity, phone and cable. As long as you make regualar bill payments and you pay your bills before overdue. This includes speeding or parking tickets.
A credit rating is not wholly based on borrowed money. You should attempt to take out a small loan as previously mentioned. We've all got something we want, so splurge.

My ex, recieved regular raises on his credit card even though he was a couple of grand in the hole. Credit card companies love idiots like him. They don't much like people like you craven, your history is spotless and you never pay them any interest. So you'll have a harder time getting more credit or at least major increases unless you conitnually bug lenders.
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Craven de Kere
 
  1  
Reply Tue 30 Dec, 2003 03:34 pm
Noddy24 wrote:
Talk to your bank about establishing a credit line on your debit card.

Your bank may even issue its own credit cards.


Yup, they do and they rejected me because I had no credit. They told me to go for a secured card and I was just about to when Capital One showed up.

Quote:
Do you know your credit rating? www.freecreditreport.com isn't completly free but for $25 you can get a listing of the information that the three major credit bureaus are carrying on you. I just did this for a financially feckless stepson.


Yep, mine's absolutely blank. There are some completely free ones in the portal BTW. Their catch is that when you see something you want to dispute you pay them to dispute it.

Quote:
Don't go hog wild on applying for credit--this depresses your credit rating. You might consider opening a charge account with a department store--or taking out a small loan from your bank.

Credit isn't just a temptation, it's a tool.


I agree. I only want credit for things that can't be done without credit. I couldn't even get a decent cell phone plan because of my credit.
0 Replies
 
Phoenix32890
 
  1  
Reply Tue 30 Dec, 2003 03:53 pm
I haven't checked them all, but every time I have seen a "free credit report" site, there is usually a catch. They ask for a credit card, so that you can be subscribed to some credit report service of theirs. You can stop the subscription, but it is a pain.
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Phoenix32890
 
  1  
Reply Tue 30 Dec, 2003 03:59 pm
This advice looks pretty sound:

http://www.ufcu.org/browse.php?content_name=credit_history&text=1
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Craven de Kere
 
  1  
Reply Tue 30 Dec, 2003 04:00 pm
Yeah, Capital One tried to sell me one for 5 bucks a month till I remembered the free one in the portal.
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timberlandko
 
  1  
Reply Tue 30 Dec, 2003 04:23 pm
Good advice right down the line, pretty much. You might inquire of your bank if they offer a "secured" Visa or MasterCard ... the limit of which to be tied by a a ort of escrowed savings account; you deposit "X" dollars, your credit limit is "X" dollars. If your current bank does not offer such, look around. The downside is that the deposit amount is unavailable to you while the secured card is valid, though the account will accrue interest at passbook rates. The upside is that your credit limit is whatever you can afford the initial cash deposit to be, and even that can be manipulated a bit by simply overpaying the account, effectively placing a cash reserve in the account, which is debited before credit is granted. That way, for instance, you could "pre-pay" an anticipated overcharge. As long as the account is kept current, and shows activity, the securing deposit may be released, and the card be converted to a standard or even upgraded card, usually with a much higher limit.

Credit Unions are another "start out" avenue, but many do not report to national credit record firms, so be advised; if not reported, increasing creditworthiness is of decidedly limited value.

Once you have a card with sufficient limit, a good place to start would be a cellphone from one of the major national providers. A few months of reported "paid as agreed" creditcard and phone company bills will bring you solicitations from a variety of eager lenders, many of which will be "pre-approved" bank card and store card offers. When that happens, shop the choices wisely, and exploit the better opportunities. Remain well within your comfort zone for payment maintenance. Within a year or so, possibly sooner, given positive credit history, satisfactory verifiable income, and stable employment (at least within the same field, if not necessarily the same employer), you likely will qualify for a new-car loan from the captive finance arm of one of the major automotive manufacturers. A few months or so from there, a reasonable, if hefty, cash down payment will certainly qualify you for a modest conventional mortgage. Once you've accomplished that, you're pretty much fully co-opted into The Establishment.

Just to echo Noddy, don't bite off more credit than you can pay for. When it come to cards, there's no reason to pay interest; just zero the account prior to the expiration of the grace period (which is from the time of the original charge, not from the statement date, BTW). An auto loan is a little different, but to maximize the credit-building aspect, go for as short a loan as the payment for which you possibly can afford, certainly no more than 4 years. If and as circumstances permit, overpay the car loan, stipulating the overage be credited directly to the principal, thus retiring the loan sooner, and at less overall interest cost. When you get a mortgage, do the same thing; here, you're really helping yourself as you are relatively rapidly increasing equity in the mortgaged property while reducing the interest-bearing liability. Real Property is a real value-gaining investment, a car is merely an expense. Oh, and one last caveat ... even if its offered a bit early .... I'd advise staying away from adjustable-rate mortgages through the foreseeable future.
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