Today's lesson, Racism. If you see something written here that you’ve said or done, use it as an opportunity. Take it as a wake up call and make the decision to grow, change and be conscious of your own privilege. Remember, I am not a speaker for the entirety of a people. Use this blog as a reference tool, not as the one and only view on the topic.
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What if you have never had a line of credit or have very little credit?
Building credit isn’t difficult. If you are responsible, you can find yourself with a very high credit score in your first year of credit building.
Like all things dealing with your score, plan on giving this a full year to see a real jump in numbers.
Here’s what you do, get a credit card.
Wait! Wait! Wait! Don’t run away screaming! I’m going to tell you how to do this without getting yourself into trouble.
First, decide what kind of person you are. Be honest with yourself here. This is very important. Are you A) a person who will get the card in their hand and decided to go shopping or B) a person who can have the card with them at all times and never use it?
Next, look for a card that can be used anywhere. VISA, Master Card, American Express or Discover. STAY AWAY FROM STORE CARDS. (Unless they have one of the “Use anywhere” logos on them) Do your homework on this, act as if you have perfect credit and apply for the best card you can find.
APPLY FOR ONE CARD AT A TIME. This is very important. The worst thing you can do is apply for multiple cards and get approved for all of them. I know, for some of you this sounds like a dream. It’s not. This would be bad. Very bad.
Because this is your first card, you will likely have a higher interest rate. Don’t panic. This is to be expected.
Ideally, you are looking for a card that doesn’t have an annual fee. This also may be difficult as you are going to be a higher risk due to no (or very little) credit history. If the only card that you are eligible for is one that has an annual fee, again, don’t panic. This is a very real possibility.
APPLY FOR ONE CARD AT A TIME. Yeah, this needs to be said twice. By “One card at a time” I don’t mean, you apply for one card on one website and then go to the next. I mean, you apply for a card, WAIT FOR AN ANSWER and if you DON’T get approved, you apply for another one. Yes, you might have to wait for a letter in the mail to tell you if you are approved. That can take up to six weeks. WAIT IT OUT. It is worth it. Do not rush to get cards. WAIT IT OUT!
Okay, so you’ve been approved for a card. Now what?
This is the ideal scenario:
When you get your card, you set up automatic payments for something you are already paying for every month in cash. Something like a cell phone bill would be great. Just the ONE bill. Once you’ve set that up, you cut up the card. Yep! Cut it up. Okay, no you don’t have to cut it up but you should put it away somewhere so that you remember not to use if for anything else. Each month, after the automatic payment comes out for your cell phone, you take the money that you are used to paying to the cell phone company and put it on your credit card instead. Do this the day after the auto payment is made. Do not wait for the credit card bill to come in the mail. Go ahead and pay it, IN FULL the day after the auto payment comes out.
This, of course, is an ideal situation. For those of you who don’t already have a bill that you pay each month, there is a second “Ideal scenario.” This is for those that fell into the “B” category in the “What kind of person are you” section:
Pick one thing, that is of a small cost, to buy once per month. For example, one fast food meal or a small amount of groceries. ONCE PER MONTH. This should not be an every week thing. Again, if it is something that you would normally spend cash on anyway, that would be great. The day after your purchase, pay the credit card off IN FULL. Do not wait for the bill.
The goal is to have SOMETHING to pay each and every month to establish your payment history. Paying the next day and IN FULL will also show that you pay on time BUT…there is this beautiful other thing that happens when you do it this way! When you pay it off the day after you purchase something and don’t wait for the bill, your credit report will show that you have 100% of the credit limit AND you pay your bill on time every month! THAT IS HUGE! Remember, your bill & payment of the bill tell the credit bureau what you owe and how you paid. If you pay the day after the purchase IN FULL, when you receive your bill, it will show a zero amount due and paid on time! YAY!
Note: This does NOT work if you don’t have SOMETHING to pay. If there was no purchase made and paid for, it shows as no payment at all. Try to avoid this. Some cards aren’t even obligated to report in months that you owe nothing. Make sure you have something to pay each month. $5 or so is perfectly acceptable.
Oh and did I mention that paying this way will also ensure that you won’t have to pay any interest? Again, YAY!
People that fall into the “A” category, this is going to be tricky for you. As you can see, the goal is to have something to pay and then pay it off in full the next day. For those that are concerned that they might go on a shopping spree, here are a few things to try:
Never take the card with you. Yes, hide the card from yourself. If you have an automatic payment you can set up, set it up and CUT UP THE CARD. For real, cut it up. If you don’t have a bill that you can set up for auto pay, sit down and think of one single thing that you can spend a SMALL amount of money on each month. Stick to that ONE THING. Make yourself. Make this decision before you even start looking for cards. Decide what that ONE THING will be and make sure that you have the cash in your hand to pay for the credit card bill the next day. If you don’t have the cash in hand, you don’t buy it.
One thing that everyone using this method needs to know is the actual due date of the monthly credit card payments. This date can be a problem. If your due date is on the 5th of the month, DO NOT make purchases within three days of this date. As a matter of fact, if your due date is the 5th, set your “Purchase date” for the 10th of the month and pay IN FULL on the 11th. The goal is to make sure each bill you receive says “Amount due: $0.”