Immediate problem: as a complete and utter dependent on my parents, I have no credit to summarize, analyze, maintain or nurture.
Solution: I wrote about how to establish credit and then keep it from crapping all over your life.
I literally wrote how to keep credit from crapping on you like a hungry angry baby.
Don't forget to see the small print at the bottom of this post for details of my own journey to establishing credit*.
Establishing credit starts at the bank. No one’s going to give you a credit card or a loan or what-have-you unless you have a checking account to show that you can manage money. Also, it wouldn’t hurt to open a savings account.** Once you have a checking account, it’s time to look into getting a credit card. There’s three ways to do this:
- Most banks offer their own credit cards. Presumably, you have a good relationship with your bank and they value your patronage. Meaning, they will gladly expand upon your relationship by accepting your application for a credit card;***
- Many department stores also have their own credit cards.**** Their sole lure is an upfront discount on a purchase. After that, say hello to highway robbery via ongoing interest rates. This is the absolute last credit card anyone should consider, if at all. A person with one of these cards needs to be financially disciplined, which includes knowing whether its activity is reported to the credit bureaus;***** and,
- The easiest credit card to obtain is a secured card.****** This works much the same way as a mortgage or loan, except the collateral is cash. You deposit money into an account to serve as a pledge securing the card. Failure to make payments means you lose the deposit.******* This can be described as a good starter card for those without credit because of the ease of access. Again, make sure the card’s activities are reported to the credit bureaus.******** Also, remember, after you’ve built up a little credit on the card, it will make it easier for you to get the unsecured card you may have previously been denied.
So, now that you have a credit card, you have credit, right? No, you have a hungry angry baby with the power to crap all over your life, if you don’t take care of it. Then, how do you nurture this newborn and not end up in debt?
- Pay bills on time. The longer you wait to change that diaper, the more it will smell and the more poop you’ll just have to clean up later.*********
- Pay the balance each month. Feed a baby and it will poop. This is what’s known as a cycle. There’s going to be a mess later. Don’t dwell. If you must continually use the card, there will continually be bills to pay. Just stay on top of your finances and the diapers will just be wet. An easy cleanup.
- A zero balance is good. However, just as locking a baby in a safe and never touching it can get you sent to prison, not using your card at all can hurt because you're establishing credit and then not letting your credit grow. Sure, poop you want to avoid. Poop is bills. More poop is debt. But using your credit card feeds your credit score and don't you want that kid to get a college education and pay you back all your stress someday.**********
- Avoid opening a multitude of accounts in a short time. Think Jon &amp; Kate + 8 meets Cloudy with a Chance of Meatballs.***********
- Closed accounts still count. Relating this to a baby would just be depressing. So, report cards. Bad grades follow you forever. So will bad credit. Treat every card well, because treating it badly and then dumping it can still affect.************
Credit reports are affected by payment history, amount of money owed, length of credit history, multiple new accounts, and types of accounts. Make well-researched decisions.*************
* This is quite possibly the most terrifying thing I've ever done.
** Personally, I think you'd have to be financially brain-dead to want a credit card without a savings account. I am in now way able to see the logic in that scenario.
*** If you're like me and have no job/income, they're going to say "No" to the standard unsecured card because there's no guarantee you'll be able to pay the bill even though you specifically told them that monthly deposit/allowance from your parents will totally cover what you're spending on gas.
**** Don't be an idiot. These cards are not your friends. They are designed to pull as much money out of you as possible. What you think you're saving on that initial purchase the store will get back on their crazy interest rates because evil evilsons.
***** The only exception I can think of is the Disney card and that's because it's backed by Chase which is a bank and thus goes by acquirement style 1.***
****** If you're a USAA member like me, this is the Platinum Credit Card for College Students. Don't freak out. Platinum is just the color of the card, it has nothing to do with worth or credit limit. I know it says College Student, but I'm sure that's just to signal it's a first-timers card.
******* I love this system. My bank made me open a CD with a minimum deposit of $250 to secure the card. By the time you get the money back I should qualify for an unsecured card. I like this system because credit terrifies me anyway, so the extra threat of losing a security deposit makes me too upset not to watch my card like a hawk.
******** This is pretty much standard of any card - secured or unsecured - coming from a bank.
********* My card arrived three days ago and I immediately used it to put gas in my card. Everyday since I've logged onto my account to pay the balance. Three days I waited for my card balance to go from $0 to $34.94 and it's been pumpkin torture. Holy, Christmas, people. Holy Christmas. Then I got to pay my bill today and decided to celebrate by writing this post. I think I might die of a heart attack shortly after posting. You know, if I have time.
********** Use your card, pay your bills/keep it at zero, and grow your score so your nice big score can do you a favor later.
*********** You ever see that episode of 3rd Rock from the Sun when Sally has like a bajillion credit cards and Tommy makes her cut them up. "Not my Bank of Crete card!" It's a like that, but way more depressing.
************ Here's a twitter quote which makes the comparison to babies not depressing.
************* Is it just me or is this post looking a bit like a credit card statement?