Establishing Credit

[HoldemPokerPlyr]

Hey as some of you may know I recently just turned 18 and I have a question about getting a credit card. I never wanted to get a credit card because all I hear is bad things about them. However, I need one to establish credit. So I was wondering if I should get one while I'm young now and establish good credit while I can. I would use it for getting gas in my car which is about $30-$40 every other week. I would put the cash aside and pay the bill at the end of the month. Is this a good idea?

[qdmcg]

This is a good idea. You only hear bad things about credit cards because most people use them irresponsibly, and spend money that they cannot afford to spend and then have to pay it back + outrageous interest.

[BradleyT]

If you get one with reward points AND are responsible, use it for everything you'd normally pay cash for including groceries, fast food, gas, beer, etc. Basically have it replace your debit card except when you get cash from an ATM.

[HoldemPokerPlyr]

http://citi.bridgetrack.com/usc/diamond/...C47D99944CA81CF

Any other suggestions?

[dc_publius]

Go to fatwallet.com Finance section and read up on different card offers. Pick one or two that will give you the most cash back on items you purchase the most.

Your credit score is mostly a function of prompt payments/credit utilization/credit life length. Have 2 cards and always pay them off at the end of the month (DO NOT be late EVER) and your score will be excellent pretty soon.

Do not listen to people that tell you to keep a balance from time to time or to get a loan for something 'to build credit'. Those are myths, pure and simple.

[BradleyT]

[ QUOTE ]
http://citi.bridgetrack.com/usc/diamond/...C47D99944CA81CF

Any other suggestions?

[/ QUOTE ]

Without any credit history don't be suprised if you get declined for that card.

[stuey_thekid]

Credit history is record-keeping as to how well you do at paying back a loan OVER TIME. Except for charge card companines and special credit cards, the companies don't like you paying off your bill every month because they make money off the interest charges and because it shows no evidence of long-term loan responsibility. It's better to pay just a bit above the monthly payments for a few to six months and then pay off the cards. Buy stuff you would usually buy with cash via credit card and put the cash into a savings account for future credit card payments.

[spex x]

[ QUOTE ]

Do not listen to people that tell you to keep a balance from time to time or to get a loan for something 'to build credit'. Those are myths, pure and simple.

[/ QUOTE ]

Taking out loans and paying them back promptly or early is the very very best way to build credit, hands down. Credit history is all about track record - when you borrow money, do you make it a priority to pay it back. The more good track record you have, the better you look to lenders.

Lenders look at the ratio of debt to income (DTI, expressed as a percent) when analyzing your finanical history. DTI is the portion of your monthly income that goes toward debt sevice. To a lender, it is totally fine to have some debt. Lenders don't care about that at all. Its only when your DTI reaches around 20% that it can negatively affect your ability to take out loans, although possibly not affect your credit score per se.

The credit bureaus don't come right out and say how they calculate credit scores, so some of it is guess work. Here are the things that are on your credit: all bank accounts, some retirment accounts, credit card accounts, store charge accounts, and credit delinquencies (i.e., you never returned a book to the library and never paid for it so they sent you to collections).

Obviously, delinquencies are bad and lower your score. Now, some people will tell you that paying your credit card late will harm your credit. Well relax. Late payments aren't reported to bureaus until they are 30 days delinquent. They're reported at 30 days, 60 days and 90 days. Every delinquency has serious ramifications on your credit. But nobody cares if you get CC bill in 2 or 3 days late, although it may affect your APR.

Ok, so what can you do to build credit:
1) keep your accounts open for a long time. REmember, its all about track record. The longer your accounts are open, the better your credit score. If you get a CC offer in the mail that is better than your current rate, call your company and use the offer as leverage to lower your rate. If you open the new card, have your first card's balance lowered to a minimum and leave it open.
2) handle debt responsibly - don't get over 10% DTI.
3) borrow short-term, small amounts from the bank and repay the loans early. If you take out $1000 on a 90 day loan, you pay that loan off on the 70th day. After a few months go in to the same banker and ask for $1500, do the same thing. Tell the banker what you're doing, he'll love it - you're paying him to help you build credit. Then when you want a loan for $100k, you go in to the same guy, he knows you and your track record, you get the money. Banks don't spurn responsible borrowers with strong track records.

[The Don]

I am in a similar situation. What type of card can I get approved for with no credit history? (suggestions or a link would be amazing)

[spex x]

you could get approved for just about any card that charges 18%+ APR. Probably you'll get more like 24% or so. And you probably won't get any nice perks like cash back. And be careful b/c some card will try to charge you a membership fee as well.