Ahhhh, the age-old question, “how can I get credit when I don’t have any?” Well there’s no time to start like the present. The first question you need to ask yourself is:
What TYPE of Credit Should I Get?
There is a difference in types of credit. If you are just building credit, you are going to want to get the most “bang for your buck.” Since 30% of your FICO score is based on amounts owed, this also goes to say that 30% of your credit score is based on CREDIT CARDS and how you use them. Now in my years of working in the credit business, many of my clients, when they heard that they had to get credit cards to have good credit, flatly rejected the idea. I then would explain to them that credit building is simply a game, much like Chess and Checkers are games. They have RULES. Like with any game, if you don’t know and understand the rules, you will lose.
The Rules of The Game
The following are the basic pieces of the “good credit score” pie:
35% Payment history
30% Amounts owed
15% Length of credit history
10% New credit
10% Types of credit used
Since payment history and amounts owed are by far the two largest pieces of the pie, this is where you will also want to focus your efforts.
Ok now back to the best way and the fastest way to build good credit. Credit cards are the #1 fastest way to build good credit. Here are a few key things to know about building good credit with credit cards:
- Size DOES NOT matter. You can build good credit just as easily with a $250.00 limit as you can with a $10,000 limit.
- The percentage of use is vital! With any credit card you get, make sure you don’t use more than 30% of the available credit. The less available credit you have on that card, the worse your credit score will be.
- Payment history is 35% of your credit score, so make sure you pay your credit cards on time every month.
- The longer you have that credit card the better your score will be. This is 15% of your score listed as, length of credit history.
- Your credit score will grow the same regardless of if you are using secure credit cards or traditional unsecured credit cards.
What Type of Credit Card Should I Get?
When speaking of what types of credit cards you should get, there are a few different types of cards.
- Charge cards such as American Express. Charge cards must be paid in full each month. These are kind of tricky on your credit report, because many times your credit report will display as the credit limit the most you have ever spent on that card. This could be misleading to your credit score.
- Revolving credit cards. These are pretty much every other type of credit card available to consumers. This is essentially an endless loan. As long as you continue to pay the loan, you will have credit available.
- Secured credit cards. This type of card is where you first make a deposit of a certain amount in order to activate the card.
- Unsecured credit cards. This is the credit card we all are most familiar with. No deposit required, just use the card and pay the bill.
When searching for a credit card to build your credit, regardless of if it’s a secured card or unsecured card, the key thing you want to make certain of is that the credit card reports to the credit bureaus. Often people will go to their bank or grocery store and purchase a pre-paid Visa debit card thinking this will build their credit. This is not the case. Pre-paid Visa debit cards are simply gift cards with the Visa logo on them. They do not build credit. Make sure that whatever card you are looking into it states in the terms and conditions that it reports to the credit bureaus.
Where Should I Go?
If you don’t have credit, I’m assuming your mail box is not getting bombarded with a plethora of credit card offers. Most of us also don’t have the time or patience to scour different websites looking for the best deals either. There is a very easy to use and very consumer friendly credit cards chart on RateCatcher.com/credit-cards which is a one-stop-shopping location for all sorts of banks and all sorts of credit cards. They even have a “search by category of credit cards” section on the top of the chart that will bring up all sorts of different credit cards specializing in the category you’re most interested in. Each credit card will provide a brief detailed synopsis of what the card offer is like. If you like it, you can apply on the spot.
I hope this information will assist you in getting started and WINNING at the credit game.
