Posts tagged as:

credit cards

Recently, when visiting MyFICO.com, I looked up the question, “How do I go about building my credit history.” This website that’s the authority on credit scores gave me two options:

  • Apply for and open a new credit card.
  • Open a secured credit card.

Wait a minute…does that mean that in order to get a credit history, I have to get a credit card? After a bit of research, I was pleasantly surprised to find out the answer is NO! While you will need a loan in order to build a credit history, that loan doesn’t have to come from a credit card company. There are several ways to build a credit history and get a credit score without getting a credit card:

  • Borrow from Yourself – This is the easiest method to establish your own credit history without a credit card. Buy a Certificate of Deposit (CD) from a bank. Then take out a secured loan against the CD for the same amount of time. Put the money you borrowed in a high-yield checking account. Then use the money you borrowed to payback the secured loan. You’ll be establishing a credit history and earning interest on your checking account and CD. There are some downfalls to this method. You need the starting capital to fund the CD. You could end up paying more interest on the secured loan than earn through your CD and checking account; however, it’s probably less than what you’d pay in fees and interest if you used a credit card. Just make sure to weigh the true costs before going down this road.
  • Federal Student Loan – There are several requirements to be eligible for federal student aid however, an established credit history isn’t one of them. As long as you’re going to a school that participates in federal student aid programs and meet the other requirements, you can take out a federal student loan. The interest rate for a new subsidized and unsubsidized loan generally has a fixed interest rate of 6.80%, which is substantially better than a typical credit card interest rate. The only catch is that your lender may not begin reporting the loan until you begin paying it back. So if you wait until after college to begin paying back your student loan, it could take years to establish a credit history.
  • Co-signing a Loan – Many banks will provide a loan if you have a co-signer with a good credit history. However, it may be difficult to get someone to co-sign on a loan, because of the inherit risk associated with it. If you’re lucky enough to get a co-signer, make sure that you make timely payments because with this method, it not just your credit history at risk. Your payment history will also affect the co-signer’s credit history. An alternative is for you to be the co-signer. If you know someone that has a high credit score, is responsible and taking out a loan, you can “game the system” by being their co-signer. As they make timely payments on their loan, they’ll be helping you establish a credit history . Be warned, if they default or make late payments, this will negatively affect your credit score.

While you’re building a credit history, it’s a good idea to keep an eye on your credit report. You can sign up for a credit monitoring service or get your free annual credit report at AnnualCreditReport.com. Make sure to review what’s listed and dispute any credit mistakes. If there are mistakes with more than one credit bureau, you’ll need to address them separately.

{ Comments on this entry are closed }

This is a guest post by Adam Jusko. Adam is the founder of credit card comparison and advice site IndexCreditCards.com. Follow him on Twitter @Indexcreditcard

Earlier this year Barack Obama signed into law the Credit CARD Act (CARD standing for Credit Card Accountability, Responsibility & Disclosure). In general, it forbids or revamps many credit card industry practices that were designed to charge higher fees and interest. A handful of the laws are already in place, the rest going into effect by February of 2010. Go here to see a full list of the changes to come.

While the new law is consumer-friendly, don’t let down your guard. Yes, the new laws protect you from the most egregious credit card practices. But if you’re someone who plays loose with credit, they won’t protect you from yourself.

Let’s look at the changes that just went into effect, to understand some of the new protections — and how a lazy consumer can still screw up:

  1. Credit card issuers must give 45 days notice before raising interest rates, up from 15 days previously. The new laws ensure that you will have more time to make new arrangements should your credit card company hike your rate from 9% to 19%.
    • Don’t screw it up: Use the longer period to pay your debt and/or get a lower interest card, not as a longer window to procrastinate. Also, open your mail – getting 45 days notice is no better than 15 if you’re not paying attention when the news comes through.
  2. Credit card issuers must send bills 21 days before they are due, up from 14 days previously.
    • Don’t screw it up: Some people will pay at the last minute (and get charged late fees) no matter how much time they are given. Use that extra week to make sure your payment gets there in plenty of time, not as an extra week to procrastinate
  3. If your interest rate is hiked, you now have the right to reject the changes and pay off your balance at the old rate (although you won’t be able to use the card anymore).
    • Don’t screw it up: If you reject an interest rate hike, you still have to pay off the card! Don’t just open new lines of credit in order to make new purchases and put payment of the old, closed account on the back burner. Because if you get an interest rate hike on your new card, you could get stuck with multiple closed accounts and no option for further credit.

    While the new laws bring needed changes, they won’t change human nature. I believe that many of the same people who got themselves into credit card trouble before will continue to do so. They’ll live on the very edge of the rules (whatever those rules may be) and afterward point the finger everywhere but where it belongs: at themselves.

{ Comments on this entry are closed }