Building credit for the first time in your life or rebuilding credit after a personal financial disaster is a tough assignment. But with some pointers from experts, and dedication to personal discipline, it can be done.
First, see where you stand at the moment with the credit-rating agencies, says Dave Roos at HowStuffWorks, who cites one report that said 50 million American adults have no credit history at all. Roos' list of credit-building steps seems aimed at those 50 million, presumably young or poor individuals, but the lessons are for everyone. Build credit by opening accounts and paying your bills on time. His last two steps sound simple, but just try them: Get a good job; and don't mess up.
There's just one sure site for getting the free credit reports that Equifax, Experian, and TransUnion are required to provide to you once a year - though only if you ask. That site is annualcreditreport.com. Note that you won't be getting free credit "scores," just the reports. The agencies can, and will, charge you to see your scores.
A list of "myths" about building credit, by Bankrate's Janna Herron, reveals some odd things about credit. For example, she says, it's better to have an open credit account in good standing - meaning you're making timely payments - than to have no outstanding loans. "A closed account only shows good payment behavior in the past and becomes less and less predictive," Herron writes. Also, since your recent behavior is more important than older information on your credit report, you can have a good credit score even with an old default or bankruptcy on your record, one expert tells Herron.
Establishing credit for the first time seems to carry a catch-22: You need credit to get credit. This article at About.com has some suggestions that clear a path for first-time credit-building. The key step is to open checking and savings accounts at a local bank. That bank then should be your first stop for a credit card or loan. If nothing else, you may be able to obtain "secured credit," which is a loan or credit card backed by your own bank deposits as collateral. Just be sure that credit obtained in this way is reported by the bank to credit agencies.
The differences among "daily simple interest," the "actuarial method" and the "Rule of 78" are covered in this outline for establishing and protecting your credit. The information is from the Federal Reserve Bank of San Francisco and explains some of the basic rules for keeping your credit safe, such as protecting your accounts' PIN codes.
Building credit for the first time or rebuilding it after a personal disaster
can be tough. But with help, it can be done. Web Wealth by Reid Kanaley, D3.
Contact Reid Kanaley
at firstname.lastname@example.org, 215-854-5114, or @ReidKan.