Building Up Credit

Squidget0

So a couple of years out of college, I'm at a point in my life where I'm now able to save a decent amount of money. I spend substantially less than I bring in every month (I live a fairly low-cost lifestyle), and have a little over $10K my checking account. Since I'd like to buy a house someday, I've been thinking about whether I need to build up an credit rating, which I suspect would be useful in eventually getting a loan.

I've never had a credit card of any kind. I've pretty much always spent out of savings and used my debit card for everything. I've heard from some that I should get a simple card and just buy something on it, then pay it off every month. Since I'm not actually buying much, I don't foresee any issues paying off any cards that I get, and I don't at all need the credit right now since I have a nice financial cushion and low spending - I'm just trying to plan for the future when credit will probably be more important.

So what should I do here? Will taking out a credit card and spending money on it help my long-term prospects? Are there some kinds of cards that I should look for more than others? Should I have more than one to build credit at twice the rate? I know that various cards can offer rewards and I have no doubt that I could get one through my bank. The problem is that I've never had a credit card and I don't really know what I should be looking for, beyond just a safe way to build up a good credit score so I can take out loans later.

Skeith

A miles card for the airline of your choice might be a good place to start, as would a Macy's card. It's going to take a couple of years for you to build credit, however you go about it, so the sooner you start using a card to buy your groceries and gas, the better. What the companies look for is steady usage and fairly quick repayment (but not so fast that they don't make any money off of the interest). If you had and paid off any student loans, that would positively effect your credit as well.

MrTLicious

Skeith wrote: »

What the companies look for is steady usage and fairly quick repayment (but not so fast that they don't make any money off of the interest).

You should pay off the entire balance of your card every month and prevent any interest charges. This will not adversely affect your credit score at all (and in fact, the lower your balances are each month, the better). Credit card companies make enough money on transaction fees: People that don't pay their balance scare them because those people have more significant default risk. This is doubly true for banks.

davidsdurions

Have you gotten your free credit scores from the three credit agencies yet? You might be surprised by the score you get from them. And if it is decent you could qualify for low interest car loans that could give you that longer term credit history that you are looking for without the hassle of having a credit card. Also a new car

Thundyrkatz

Also diversity of loan types is important, not just credit cards. So if you have had any store credit or auto loan credit or student loan credit. that is helpful also.

TOGSolid

I did the credit card thing and it didn't really make much of a dent but if you want to build tons of credit quickly, my score shot up fast after I bought my car (it's my first).

Jasconius

cars are a lot better than credit cards

particularly buying, paying on, and then paying off cars (usually by trading them in or folding the equity into a lease)

If you buy a car, pay on it for 2 years, and then trade it in on a lease, you'll come out on the other side of that least with decent-to-good credit no questions asked, as long as you make your payments

Deebaser

Squidget0 wrote: »

So a couple of years out of college, I'm at a point in my life where I'm now able to save a decent amount of money. I spend substantially less than I bring in every month (I live a fairly low-cost lifestyle), and have a little over $10K my checking account.

This is a sub-optimal financial build.
-Take that $10,000.
-Subtract your paycheck. This is your starting point.

-Estimate how much money per month you would need to live if you lost your income tomorrow.

-Multiply that by three and put that in a High yield Savings Account. (I use Amex personalsavings.americanexpress.com, but there are others. I just have that book marked.)

-Take the balance and dump it into an investment account. Grab ETF shares and let yo shit grow, holmes.

-Set up an auto payment to your savings account every paycheck.

Marty81

davidsdurions wrote: »

Have you gotten your free credit scores from the three credit agencies yet? You might be surprised by the score you get from them. And if it is decent you could qualify for low interest car loans that could give you that longer term credit history that you are looking for without the hassle of having a credit card. Also a new car

Don't do this unless you actually need the car.

You should be able to get a basic no annual fee credit card from your bank (or even better, a rewards card) and then pay off the balance every month. This is a great way to build credit and isn't dangerous at all as long as you have the discipline not to overspend and pay off the full balance every month. Having your house bills are in your name and paying them fully every month also builds credit. Making the required payments on your other debts (student loans?) also builds credit. Between all of that you should be able to build up an excellent credit score pretty quickly.

I spend substantially less than I bring in every month (I live a fairly low-cost lifestyle)

That's good. Keep it up!

Djeet

You don't build good credit ... you accrue good credit from behavior over time.

If you want to buy a house then yes, get some credit cards. I'd suggest one with rewards that you can use (miles, points to getting swag, cash back). And if you shop at particular stores look for store credit cards, or gas cards for the gas stations you regularly hit. That all said, opening a line of credit will likely reduce your credit score ... it's only 2, 3, 4+ years down the line when your credit profile shows you've been a good borrower that this will net add strength to your credit reports.

The smart way to do it is moving your operational transactions (food, utilities, gas, etc) from cash to credit, and paying it off every month. Do not use your credit card limit as money you don't actually have (emergencies permitting). If you're savvy about this it can net you free plane tickets every year (if you like miles and such).

Gaslight

Marty81 wrote: »

Having your house bills are in your name and paying them fully every month also builds credit.

I am not sure if this is always true. I think it depends totally on whether your particular utility companies can be arsed to bother reporting to the credit bureaus. I myself only recently applied for a couple of credit cards for this exact purpose, building credit so I can get car/home loans in the future when necessary (never had any credit cards all the way through high school or college, I didn't need them and didn't want to be tempted to get into debt). With each application, I was told I have no credit history available at all...and I have been paying bills at my place in my name for over a year.

I did eventually get credit cards from Discover and my local bank and I am just putting a tank of gas or something on each every month and then paying off the balance on time.

Nosf

Get a credit card as soon as you can and use it responsibly, I avoided them for years and when I finally went to get one...it was a giant hassle to get one because I had no credit record. Use it for gas and groceries, then pay it off each month. Never ever pay only the minimum if you can help it. If they offer to up your limit, then say sure and let them do it because you don't have to use it, but if you decline that also becomes a hassle. I had to play 200 questions with VISA to get a limit increase because I hadn't bothered to up the limit for ages.

More importantly, if you can't afford something, don't buy the goddamn thing on a credit card. That entire industry is them providing enough rope to people to hang themselves.