Weekly Financial Tips
ESTABLISHING CREDIT – There are lots of reasons why you might be looking to establish or reestablish credit. Maybe you’re a recent college grad or someone who just went through a divorce. Or perhaps your dog used to eat your mail, causing you to pay your bills late or not at all. There are a few things you can do to establish credit even if you don’t currently have any credit cards or loans. 1. Open an account. Open a checking account to pay bills via check and not overdrawing your account begins the process of proving that you may be a good credit risk. Paying monthly bills like rent, utilities, insurance and cell phone bills from this account can help you prove to your bank or credit union that you’re a safe risk by paying your bills on time. 2. Get a secured credit card. Credit cards are a convenient way to make purchases and pay for them over a period of time. Having a credit card and using it wisely helps you build a record that can make it easier for you to apply for other types of credit – auto loans, home mortgages, and personal loans. a. Secured debt is backed by some form of collateral (usually a savings account with the same institution that grants you credit). The money deposited with the lender sits untouched unless you miss a payment or file for bankruptcy, in which case the lender may be able to seize the assets in your account. This account gives the lender the confidence to take a “risk” on someone who has no credit or bad credit. b. Most secured credit card issuers will give you a credit line equal to 100% of the amount on deposit. Some banks or credit unions will increase your credit line without additional deposits after you have paid on time for several months. c. Compare secured cards. Visit http://www.federalreserve.gov/Pubs/shop/#info for more information. d. Ask about the terms. Ensure you compare cards and understand the credit card terms, especially the following: Annual percentage rate (APR), annual fees, application fees, late, over-the-limit fees, penalty rates (default rates for late payments), grace period and credit reporting. e. Credit reporting. Ensure that the card you select reports your payments to one or all of the major credit reporting agencies on a regular basis. Frequent reports of on-time payments will help you build your credit a lot faster. 3. Graduating to an unsecured card. Secured cards can be used as a stepping stone to a regular, unsecured credit card. Use your card to make purchases but make sure you pay on-time – just having the card but not using it does not help you build credit. 4. Be patient. It takes time to establish credit. 5. Always shop around for the right deal for you.
6. Learn about credit products, terms, and your rights and responsibilities as a borrower. The best way to avoid being taken advantage of is by being well informed.
Compiled by Ryki Carlson
References: www.becu.org and www.consumer-action.org