By Amy Braun-Bostich
With today’s economy, you almost have to have credit to get credit. However as we all know, it is imperative to have good credit so that you can purchase a car or a home, establish a business, and conduct many other affairs.
Become an Authorized User on Someone Else’s Credit Card
Since you must have credit to get credit, how are you supposed to build credit if you have no credit? A great option is to be added as an “authorized user” on family member’s credit card. Authorized users get access to the credit card and are able to start building credit history, aren’t legally obligated to pay for charges. This of course is only a good idea of the cardholder himself is paying on time and practicing good credit habits.
Start With A Secured Credit Card
One of the ways to get instant “credit” is to get approved for a secured credit card. A secured credit card is one where you load the card with a specific amount of money, normally between $200 and $300. The amount of cash you put on the card will be your credit limit. In order to build your credit, you must pay off each purchase so that you always have money left on the card (this is because having a “credit available to use” is factor that makes up your credit score. You will have a minimum payment that must be paid every month. At the end of the probationary period, the money you deposited onto the card will be returned and you will be given an actual line of credit.
Work With a Co-Signer
If you are first starting out, a personal or car loan or unsecured credit card may be impossible to get unless you have a co-signer. Make sure that both you and your co-signer understand that the co-signer is fully responsible for funds owned should you not be able to pay.
Payment Best Practices
Good credit requires that you pay not just your loans or credit cards on time each month, but all bills. So be sure to make 100% of your payments for all bills on time (utilities, cable and phone, internet, etc.). If you are trying to establish your credit by using a credit card, paying over the minimum amount each month is an excellent way to pay your balance down. Simply round up your payment to the next $5 or $10 amount ($26 would round up to $30, and so on). It will also keep you from paying excessively high interest on the amount you spend. Additionally, keep your credit utilization low on your credit cards. Utilization is the balance you owe when compared to your limit. It is recommended that you pay in full each month, but if you must carry a balance at times, experts recommend not letting it exceed 30% of your credit limit.
Building good credit takes time and common sense. If you have an established credit line, do your best to not have to rely on it for necessities. By maintaining your budget and spending within your means, your credit will take care of itself.
Schedule a call with a BBA Advisor to discuss this or any other timely topics of interest.
Braun-Bostich & Associates Inc. a registered investment advisor. This information is being provided only as a general source of information and is not intended to be used as a primary basis for investment decisions, nor should it be construed as advice designed to meet the particular needs of an individual investor. Please seek the advice of your advisor regarding your particular financial concerns. While the information is believed to be accurate, distribution of this material should not be considered an endorsement of any particular investment strategy, product or service described therein.