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It takes time to establish a good credit history, it doesn't happen
overnight. But you can get started by applying for a credit card, and using it
wisely, which can help you on your way to having an excellent credit rating.
Follow these simple steps to get started: Applying for a credit card is usually the easiest part. A credit card of your
own is often easy to obtain, even if you have little or no credit history.
Activating it is very simple as well, and usually only takes a minute. Now comes
the tricky part, managing the credit card wisely. When trying to establish your credit history using a credit card, you must be
very careful how you manage your newly found credit line. I learned this lesson
the hard way, my first credit card had a $5,000 limit. I applied for, and
received this card shortly after I turned 18. I used this card sparingly at
first. Then, to make a long story short, I ended up charging things here and
there like gas for my car, and various other purchases, and not paying the balance off each
month. Basically I was being very careless with my credit line. About a year and
a half after I received the card, I had maxed it out. Yes, at this point I was
in debt almost $5,000 to a credit card company, on one card! It happened so fast
I hardly even knew it before the debt was already looming over me. At the time,
being about 20 years old, and not having a lot of income - $5,000 in
credit debt seemed like a mountain to me. At first, I was only able to make the minimum monthly payment, which was
somewhere around $115/month. Since many credit cards carry an outrageously high
interest rate (mine was about 21%), about 90% of the payment was going to
interest alone. That means if I only paid the minimum payment, it would've taken
about 7 years to pay off that debt. And in the end I would've paid around $4500
just in interest! That's in addition to the $5000 debt I already had on the card. So
add that up and that original $5,000 of credit card debt would've cost me almost
$10,000 over the 7 year span that it would've taken me to pay off the debt, by
making the minimum payment. So what happened? Well, I got smart, worked hard, and organized my finances
in a way that I was able to pay off the debt in about 2 years, instead of 7. It
was not easy though, and it still cost me thousands in interest. By the time I
started paying down this credit card debt, I had some additional credit cards
with high balances on them as well, which when added to the original $5,000, came to a total
of almost $10,000 in credit card debt. Talk about a looming mountain! It was so overwhelming,
there was even a time when I was considering the possibility of bankruptcy. Not only can debt such as this become a burden in itself, too much
credit card debt can, and will, lower your credit score. With a low
credit score, it gets increasingly difficult to get approved for any new credit (such as another credit card,
auto loan, personal loan, etc.). In fact, having this debt lowered my credit score so much that I could not
even get approved for a lower interest credit card to transfer my balances to. So I had no choice but
to sit there and pay the high interest rates of the cards I already had. Manage your credit wisely in the first place, and don't get yourself into a
position like I did! Many people make the exact same mistake I made, and are not
able to pay off the credit card debt as quickly, or for some people, not at all.
Don't just pay the minimum payment and think to yourself "No big deal,
I will just pay it off later". Chances are, "later" may never
come and your debt will remain, and even get larger if you continue to make
charges on the card, if you don't pay the bill in full each month from the start. If you are unable to obtain a credit card of your own, or you want to avoid
the temptations of maxing out your credit card, with the possibility of not
being able to pay it off, consider applying for a Secured Credit Card. A
secured credit card requires a cash collateral which then becomes your credit
line for the account. It's similar to opening a checking or savings account, you
will not be able to charge more than your cash deposit. For example, if your bank approves
you for a secured credit card, and you put a $500 deposit on the
account, you will only be able to charge up to $500 on that secured
account. With this type of credit card, you can usually add more money later if you
use up your initial deposit. The benefit of having a secured credit card account over writing checks or
using a debit card, is that it is normally reported to the credit bureaus,
and will help you in building a good solid credit history. Go to your bank and
ask them about opening a "Secured Credit Card Account", and be sure to
ask them if the account will be reported to the three major credit bureaus
(Equifax, Experian and Trans Union). If they do not report the account to the
credit bureaus, then the main benefit of this type of account (in an effort to
build a good credit history), is completely lost. After you have begun your quest for "good credit", make sure you
check your credit report and credit
score on a regular basis, and be diligent about maintaining
good credit. If you do this, you will have an excellent chance of having a successful journey!
Also, if you haven't already, don't forget to check out our article on how to get a
totally free credit score.
How to Establish Good Credit using a Credit Card
Managing Your Credit Card Wisely
Moral of the story?
Pay your balance in full each month
Secured Credit Cards - The Alternative
Check your credit report and score
