How to Build Credit When You Don't Have Any

Ahhhh, the age-old question, “how can I get credit when I don’t have any?” Well there’s no time to start like the present. The first question you need to ask yourself is:

What TYPE of Credit Should I Get?

There is a difference in types of credit. If you are just building credit, you are going to want to get the most “bang for your buck.” Since 30% of your FICO score is based on amounts owed, this also goes to say that 30% of your credit score is based on CREDIT CARDS and how you use them. Now in my years of working in the credit business, many of my clients, when they heard that they had to get credit cards to have good credit, flatly rejected the idea. I then would explain to them that credit building is simply a game, much like Chess and Checkers are games. They have RULES. Like with any game, if you don’t know and understand the rules, you will lose.

The Rules of The Game

The following are the basic pieces of the “good credit score” pie:
35% Payment history
30% Amounts owe
15% Length of credit history
10% New credit
10% Types of credit used

Since payment history and amounts owed are by far the two largest pieces of the pie, this is where you will also want to focus your efforts.

Ok now back to the best way and the fastest way to build good credit. Credit cards are the #1 fastest way to build good credit. Here are a few key things to know about building good credit with credit cards:

• Size DOES NOT matter. You can build good credit just as easily with a $250.00 limit as you can with a $10,000 limit.
• The percentage of use is vital! With any credit card you get, make sure you don’t use more than 30% of the available credit. The less available credit you have on that card, the worse your credit score will be.
• Payment history is 35% of your credit score, so make sure you pay your credit cards on time every month.
• The longer you have that credit card the better your score will be. This is 15% of your score listed as, length of credit history.
• Your credit score will grow the same regardless of if you are using secure credit cards or traditional unsecured credit cards.

What Type of Credit Card Should I Get?

When speaking of what types of credit cards you should get, there are a few different types of cards.

• Charge cards such as American Express. Charge cards must be paid in full each month. These are kind of tricky on your credit report, because many times your credit report will display as the credit limit the most you have ever spent on that card. This could be misleading to your credit score.
• Revolving credit cards. These are pretty much every other type of credit card available to consumers. This is essentially an endless loan. As long as you continue to pay the loan, you will have credit available.
• Secured credit cards. This type of card is where you first make a deposit of a certain amount in order to activate the card.
• Unsecured credit cards. This is the credit card we all are most familiar with. No deposit required, just use the card and pay the bill.

When searching for a credit card to build your credit, regardless of if it’s a secured card or unsecured card, the key thing you want to make certain of is that the credit card reports to the credit bureaus. Often people will go to their bank or grocery store and purchase a pre-paid Visa debit card thinking this will build their credit. This is not the case. Pre-paid Visa debit cards are simply gift cards with the Visa logo on them. They do not build credit. Make sure that whatever card you are looking into it states in the terms and conditions that it reports to the credit bureaus.

Where Should I Go?

If you don’t have credit, I’m assuming your mail box is not getting bombarded with a plethora of credit card offers. Most of us also don’t have the time or patience to scour different websites looking for the best deals either. There is a very easy to use and very consumer friendly website called http://www.creditcards.com/ which is a one-stop-shopping location for all sorts of banks and all sorts of credit cards. They even have a “search by credit quality” section on their front page that will bring up all sorts of offers that a person of the selected credit condition might qualify for. Then each offer will give you a brief detailed synopsis of what the offer is like. If you like it, you can apply on the spot.

I hope this information will assist you in getting started and WINNING at the credit game.

Dealing With Your Personal Finance Holiday Hangover

Ahhhh the New Year is up on us! 2012 here we come! Now that your Christmas/Hanukkah/Kwanzaa/Winter Solstice gifts are unwrapped, the fruit cake from Aunt June is put away to age for the rest of eternity, you finally have a moment of clarity! Holy crap! I have credit card bills on their way. I have to pay for all of these merry festivities now!

Not to fret, we’re here to make some sense of it for you, and to give you some guidance so that you don’t go as crazy as “Cousin Eddie” standing in the snow with a septic hose in his hand.

First Things First

You should obtain your free copy of your credit report after the New Year. Since you are allowed, by law, one free copy per year- what better time to get it than the start of a new year. Go to http://www.annualcreditreport.com/ to access your Experian, Equifax, and TransUnion credit reports. Review these reports very carefully, make note of any accounts or any details of the accounts that don’t seem accurate or even are not your accounts at all.

Second

Take note of credit card utilization on your revolving lines of credit. Since you were likely hittn’ those credit cards like….well you know. Your credit card utilization ratios likely went close to 100%. Anytime your credit cards exceed 50% utilization, your credit score will take a serious dive. According to the FICO credit scoring model, credit card utilization accounts for 30% of your entire credit score.

Third

Set some financial goals. Now that you have your free credit reports in hand, added with the fact that you are entering a new year, what better time to set some goals? What do you want to accomplish in 2012? Do you need to refinance your home? Buy a new car? Prepare a son or daughter for college or an up-coming wedding? You are likely going to need to use credit to accomplish any of these goals.

With your credit reports spread in front of you now, you can now see the “big picture”. You can now see what cards need to get paid down to achieve that 30% or less utilization ratio to help grow that FICO score. You will be able to take note of any accounts that have erroneous information so that you can begin disputing these inaccurate items with the credit bureaus.

Finally

In order to have a successful, prosperous, and relatively stress-free 2012, you must start now to recognize areas of trouble and deal with these financial issues promptly.

Just think, you should want to have your financial life in order given the Mayan Prophecies anyway. You don’t want to be that guy whose sole financial survival plan is to post-date all his checks until December 22, 2012 do you? I knew you were smarter than that guy!
Good luck and have a happy and prosperous 2012.