Building your Credit?
 

Hello, Everyone

I want to start building my credit. However, I've heard many terrible stories of people drowning in debt because they simply don't understand how interest, credit/credit cards work. I want to avoid that by knowing all the ins n outs. :thumbup:

Why do I ask this on this forum?
Well, I came across a thread were you guys mentioned the interest you paid to get your FR-S/BRZ. Some of the numbers were great so let me hear your secrets!! (I am assuming those numbers are true).

So far I've done a little research and spoke to a personal banker @ my Bank and this is what I've been told/ what I know.

1. The easiest way to start building your credit is by getting a credit card (My bank is already offering one right now for $300 @ 18% interest :eyebulge:however this banker I spoke said to me that if I pay 2 weeks early/before the due date and spend about 1/2 of the available funds that I won't get charged any interest? (It's supposed to be a secret credit companies don't want me to know) True/False

2. Always pay the full amount that you owe NOT the minimal amount they want you to pay so you can dig your own grave.

3. Spend less than [<30%] of funds available to benefit your credit score. Because if you spend over 60% it will actually hurt your credit score? T/F

4. Pay 2 weeks before payment is do (to avoid paying the interest)? as I mentioned above.

5. Keep using this card for a year or so (pay for gas, food @ restaurants etc.. staying within the limit) then your bank will offer you an unsecured card meaning they trust you a little more.

6. NEVER go over the limit!!

If it matters my age: 19 years old

Any further advise or clarification that you guys/gals can give me. I would greatly appreciated. Thanks!

Not sure where the two weeks early thing comes from, let me explain to you how it works.

Let's say my billing cycle is on the 1st of every month.

Every purchase I make between June 1st and June 30th is recorded. On July 1st, I receive a statement and a bill, saying "You charged $800 in June, payment is due August 1st". I have until August 1st to make a payment. If I pay off the full amount by August 1st, I will not have to pay any interest on that $800. My purchases between July 1st and July 31st will be on my August 1st statement, and that bill will be due September 1st. You never have any less than 1 month between actually swiping your card at a store and having to repay the bank before interest, and it could be up to nearly 2 months depending on when in your cycle it happened (my June 1st purchase doesn't need to be paid off until August 1st). There's really no point to paying any sooner than the statement, and you have 30 days to pay that off. I have all my cards set up to automatically pay off the last month's statement balance a couple of days before the due date, and forget about them otherwise.

If, however, I don't pay it off by August 1st, I will be charged interest on whatever portion of it I still owe. This accumulates from month to month, and it's a very poor idea to let it do that.

I can charge up to my full monthly limit each month without a problem, but that's considered a high utilization (one of the metrics for your credit score is the percent of your credit that you use each month, and lower is better). There's no threshold of half your monthly limit at which interest suddenly is calculated differently.

There's no need to pay it off two weeks early, and if your banker says that it's a secret that credit card companies don't want you to know, I highly suggest that you start going to an actual bank. Seriously. That's not true at all and anyone who works at a real bank should know better.

To tell you a story, when I was 18, I got a Capital One credit card with a $500 monthly limit. After a year or so of using it and paying it off every month, they increased my credit limit. After another year or two, I got an offer from another credit card company for one with a much much higher limit. After using that for a little bit, they increased the limit as well. My latest card has something like a $20,000 limit, far more than I'd ever charge, but since I have a good payment history, the bank is willing to give me that high of a limit. So don't get discouraged if you have a hard time getting credit cards at your age - I got turned down by my own bank at 18, and had to go to another bank. Good performance with this low limit card will allow you to get better cards in the future, including rewards cards (my current primary card gives me 1% cash back, so I use it as much as possible, since that's just more money in my pocket versus paying in cash, and there are plenty of other cards with incentives)

If you end up getting the secured credit card, make sure you only spend what you actually have and not what your limit is. Every time you use it to buy anything, pay it off right away(e.g. if you use it for your $50 meal at texas roadhouse, make a payment via your smartphone for the amount you used, assuming you have an android/iphone).

To answer your question, yes if you pay off your balance right away you wont pay any interest.

To be honest, your credit will only reflect the length of time you've had credit and your credit to balance ratio. Though by using your card, you increase your credit limit which helps your credit to balance ratio.

What @nalc said is good information. The biggest key to building your score is not spending more than you can pay off. For example, don't run the card to its max without the funds to pay it down. When I first got a CC at 17 I had the same deal as you $300 at 18%. The advice I was given then was to buy little things each month such as gas once or twice and pay it off each month as a start, year by year the bank will increase your credit limit, as it gets higher so will your score and your interest rate will drop. Credit is great to have but it should also be used sparingly, just because you have the availability doesnt mean you should spend it. Take me for example, I'm 25 with a mortgage at 4% rate, a FRS with 2% rate, and 40k in credit availability. I'm currently at 2.8k on two cards due to emergent circumstances. My score is 771, not bad IMO:thumbsup:. If im not mistaken, never spend more than 10% of your available credit if you can help it (if im wrong please correct me). Personally I only use credit for emergencies or when I'm making a big purchase that I can pay off immediately. Credit is all about telling the lender that your trustworthy and will make your bills on time. It is not a free pass to spend money you havent earned yet! Other factors that go into a score is your ability to pay off loans(ie car and mortgage) those are big loans that show your credit worthiness.

Her strategy of the 2 weeks early comes into play by spending lets say 40% of the limit and not spend any more for the rest of the month, pay it off by the middle of the month and you're good (Similar to what PineappleFriedRice mentioned of paying off as you spend (interesting). She's a personal banker at my local bank not my Banker (Sorry for the confusion)

I will definitely do the automated payment a few days before the due date as you mentioned. I am definitely looking forward to avoiding that interest.

My my goal is get some credit to buy a Condominium asap!, rent lets say 3 and live in 1 so I won't have to worry about rent, bills, etc... I want to invest the money that I am earning into something else. As of right now I feel that rent money is going to waste so yeah.

Yes it will initially be a secured card but I will graduate to unsecure with higher limit. I didn't know you could pay as you go. If there's anything else I should know let me know. :happy0180:

Hey Briang0901 thanks for replying to my post. I was told to spend around 30% of the available credit. I paid my FR-S in full last year and as of right now I am considering selling the car and buying a new one again on credit just to build my credit (I know I am going to loose money but that doesn't matter, I have to get my Condo asap!. I will set up automated payments with 30% more than the actual payment for a year or two and then pay of the rest. Making payments is not an issue for me.

771 not bad. I am not looking to over use credit I just want to own a Condo and a House so stop giving away my money a landlord. Later down the road I will use the credit for loans if needed to start my own company.

But that doesn't make any sense. You don't get anything for paying it off early. Is she suggesting that when you receive your statement for the month of June on July 1st, the statement that says right at the top "Payment due August 1st", there's somehow a hidden incentive to paying it off by July 15th?

Frankly, from the phrasing of pineapplefriedrice's response, he doesn't seem to know how credit cards actually work. There's no interest until you've failed to pay off your statement balance before the due date. If you charge something June 5th, why would you make a payment on June 6th? Wait for it to hit your statement on July 1st, then pay it off on July 31st. As long as it's paid before August 1st, you won't owe any interest. There's really no point to making small payments on a daily basis, just wait til you get the statement then pay it.

Ok I see. I am just going to pay 2 days before the due date. So do this applies to all banks or only to some. I mean like maybe some banks require you to pay a day, others maybe two before in order to avoid interest?

Going with an 18% interest card is silly if you come up against hard times for any reason.

Go with a Credit UNION. They generally have lower rate cards available.

Back in the 70's I bought a TV on credit to start out. I had the cash, but wanted to get going.
Paid it off every month on time. Low risk progression. I suppose a tablet or laptop would be another good option now.
Don't go for a new car as your first debt debut.
Build up with some more expensive items that you could afford with cash immediately.

They like to see that you pay up on time reliably. It's the history that counts.
Your credit limit is not what you have available to spend.
It's what the banks want you to be in debt for and paying them 18% interest on.


Stupid TV didn't wear out until '96. Flat screens were starting to show up but were more than I wanted to spend.
Got another tube unit and that will probably go another 20 years. FML

I love your line!! "Your credit limit is not what you have available to spend.
It's what the banks want you to be in debt for and paying them 18% interest on." I am going to pay on time so I won't have to pay that insane interest :happyanim: Till now I've been paying everything in cash. Now I am going to pay for needs with the credit card. Pretty much I am spending that money monthly anyways. Thank you very much for responding. If you have anything else you like to add feel free. :)

1 ! Primero ! Ichiban !

Find a lower rate credit card !

Thats how I started, with a $300 limit credit card, I was 18 though. Worth checking out would be a credit union as my initial interest rate was more like 12%. I used it for filling my car with gas once or twice a month, then paid it off in full. 2 months in they bumped my limit to $500, 4 months later it was at $1000 and 4 months after that they went to 3k, all without my asking for a bump in credit.

The most important is to pay the bills on time and be generous (not just the minimum payments). You can be drowning in debts and still have a descent score if you are good at paying them back. ( That's what credit is, paying back money you own). As long as they know you'll pay back, you'll be golden.

If you pay your credit card bill monthly 'and' pay the entire amount due before the due date the interest being charged by your credit card company doesn't mean a thing because you will never pay any interest. Just be sure you get a card that doesn't have an annual fee.

We have two credit cards. One is American Express we obtained with our association to Costco and the other is a Visa we obtained because of our association with L.L. Bean. Neither card has an annual fee.

Because of a cash-back feature our American Express has we literally use it for every purchase where possible, even going to the movies. The annual check we get back is a nice boost to the wallet. The only trick is to pay the amount due in full each month.

cc rewards = free money if done right

Have ended up holding a few different cc's. All purchases possible go on them with the exception of 12 or so small debit card purchases a month to maintain bonus checking account interest.

Each cc has different cb reward % for different categories, purchases are put on card with the best reward available.

All cards are paid off in full each month.

No card is ever viewed as anything other than cash on hand. Credit limit never comes into play.

Last year I got over $700 back. But a big chunk of that was milking the shit out of 5% rotating categories and a house renovation.

Most years I end up with around $400 back.

Very simple.

Don't use more than 50% of limit and pay off 100% every month. Think one more time before you swipe that card!!!

I will definitely look into many credit card companies to try to get the lowest interest. :thumbsup:Thanks!

I see what you mean but I am always going to pay the full amount. :thumbsup:Thanks!

Awesome info. "without annual fee it will be" :thumbsup:. What % of cash spent do you get back?

I will. Thank you Sir!!

Mmmmm why do you even worry about interest rates? I have no idea what my interest rate is, but it's probably higher than 18%.

I just check my account every week, pay it off, and continue putting everything on the card.

3% free standing gas stations (non-quick mart type stations)
2% travel
2% restaurants
1% everything else.

It might not sound like much but if you use the card every time you can, in a years time you get a pretty nice check in the mail.

Another neat point is that the longer you maintain credit the better... Meaning don't ever cancel a credit card. It looks better just to have a credit card that sits in a drawer in your dresser than to cancel it, my wife and I use 1 credit card for all our purchases and we have two other cards in case of emergency. I check them at the end of the month and pay them off then. I financed my car for 2.6% through Toyota financial. I'm 25 now. When I was ur age I got my first credit card through my bank for $500 backed by $500 cd just incase. Still have the card today, I don't use it anymore but it looks better to have it. Good luck, just be sure you have the money to pay for something before you use the card.

Generally credit cards should be used for two things - convenience of payment and optimizing cash flow. Every card has a billing cycle - usually one month, and a due date - you must pay off all you spent in the previous billing cycle by that date to avoid any interest. Consider everything you spend using card as CASH payment, which means that you actually have that money on hands or in the bank. I never keep any balance over more than one billing cycle unless I use a promotional 0% interest offer, but then make sure that all is paid off by the end of promotion, and card is not used for any other purchases at that period. When you build your credit enough, you will be able to get card with cash back. Use it for ALL your purchases and payments to make cash flow as much as possible - you car earn few hundred a year as bonus that way. To pay off balance use on-line service of the credit card issuer. That way you can make payment on a day before due date and protect yourself from lost mail with check to the bank.

Too lazy to read all the comments here but It was probably addressed.
Basically credit cards=Free money!
I'm at 70$ in cash back rewards.

Figure out your debt to income ratio-(How much you make vs. How much you spend a month on bills/loans/ect)
You want to keep this percent low. There are calculators online. This doesn't directly affect your credit score but it does effect how lenders set your interest rates.
https://www.creditkarma.com/article/...o-income-ratio
And its also just good to know.


Now onto the cc part- I use at most 25% of my available credit. The higher you're Card limit the more % of it you can use, which = More cash back rewards.

-A few fun facts, Say if you fuck up and totally get into debt with your first cc. Don't close it.
Pay it off obviously BUT leave it open- What makes a good credit score is how LONG you had a cc/or loan. By closing it out it hurts your history. (Hope that makes some sense)

Pay it off in full to avoid that thing called interest rates.


http://www.myfico.com/crediteducatio...yourscore.aspx


Another thing that helps is having different types of loans. Say school installment loans/and car loans.
But remember to factor this in into your debt to credit ratio. If you know that % is high than it will help influence your monthly spending on things you want rather than Need.

I will be the "fish going against the current" and say "who cares?" You don't need credit to suvive. I would say stay away at all costs. Your FICO score is 100% based on your relationship with debt. I can tell you straight up that 9 out of 10 people FAIL in this area. Why would you want to go into battle if you don't have to?

Because credit cards have cash rewards. I pay 3.3% less for gas thanks to the generosity of Bank of America. I already got 200 bucks back since last year :D Planning on opening a Citibank card for bonus points on restaurants.

Lol, I have yet to meet someone well off that told me, "you know I made all my money through cash rewards" ;).

If you are wealthy, you will be the first.

We all want to build our credit to buy a house, buy a car, buy SOMETHING. Not necessary. Cars tend to be "wants" more than needs and you can get an unconventional loan with no credit score of you are so inclined to take a loan out on a house.

You can get all these things just by being patient. It just takes time. We all want things NOW because that's how we have been trained. We have been marketed to so well that we can no longer wait for something we can't afford at the time (I'm talking buying cash, not making payments. Just because you can make they payment doesn't mean you can afford it). We "owe it to ourselves" to take out loans on things we can't afford to impress people we either don't like, or will never meet

I would never buy anything using credit, and cash rewards are only a few percent deduction, but I'd rather have that extra few hundred bucks a year than not. Totally worth logging into my bank account a few times to pay the credit card bill. Show me another way to make 2-3% of all expenditures in a month in 3 minutes.

Off your expenditures, you can't. Investing in mutual funds you can make around 7 or so %. So there is your 3% and then some just by putting a little money away....and then you won't be tempted to spend that extra money on a TV to get that 3% rewards

I'm not saying it can't be done. But 88% of people failing with credit card tells me to stay away. Temptation of instant gratification is too strong. That's why for the OP, I suggest to stay away. Avoid the temptation all together

And I've never met a rich person that didn't borrow other people's money when it made sense.

Even the largest companies in the world borrow money rather than using their own every single day.

Yes, you can buy a car with cash. But that's even more stupid than buying it on credit. Why? Because I can borrow Subaru's money for 1.9%, but my own money makes me 8-14% (every year the past 15 years, including '08-'10). Every year I keep that cash in the bank -- I make $3,000. Over the course of a 5 year note, I pocketed $15,000 by keeping my money in my bank, and only had to pay Subaru some $1,500 to borrow theirs. That's easy money right there. My newly-built home is full of appliances and furniture all purchased at 0% interest. I can pay nothing at all, then pay it all in 5 years when my money is inherently worth more due to inflation, plus I made money on my money in that time floating their money for my furniture. That's like getting a 25%+ discount -- a considerable sum of money on a house full of appliances & furniture, I'll you that much.

And saving money to buy cash for a house? That'd take forever. Again, I can borrow that money for <4%. But that "unconventional, no-credit-score" loan -- those interest rates are nowhere near as low as for those (particularly thesedays -- pre-'08 they weren't quite as bad). So, again, your costing yourself MORE money going that route rather than just putting in the modicum of work to get yourself a decent credit score/history so that it's there when you need it. It makes a staggering difference when it comes to home purchasing. A 1% difference in your loan rate, can change the value of the home you can afford to purchase for the same payment by as much as 25%. So putting in the work to save yourself a mere 1% on your interest rate when it comes time to buy a home, can mean the difference between looking at a $200,000 house and a $250,000 house for the same monthly payment.

Smart people know when to use their own money and when to use someone else's. Access to extremely cheap capital is one of the most significant aspects of how the wealthy get and, more importantly, stay wealthy. Likewise, absurd interest rates on used vehicles, payday loans, and retail credit is one of the most significant hindrances to economic mobility in the country today.

The fact that some people can't manage credit correctly doesn't make credit bad. Credit is absolutely awesome if you know how to use it wisely. It allows you access to all sorts of things that you either could not afford, could not afford presently, or would cost you much more money otherwise. Avoiding it because some people can't manage it correctly, is like avoiding alcohol because some people become alcoholics, or good food because some people gorge themselves and get fat.

Or, you could invest your money, AND buy with a credit card and score both. Durr.

Quote:

Originally Posted by SigmaHyperion (Post 1118431) And I've never met a rich person that didn'tborrow other people's money when it made sense.

I'm not going to go crazy on this (at least I don't think) as I am still very much a noob when it comes to finances. Myown story is pretty pathetic, but with time, I hope to make it an amazing one.I won't cover everything as I just don'thave the knowledge to do so, but I will cover what I know.

As far as getting a 1.9% interest rate, at 19, I highly doubt the OP is going to get an interest rate that good. Inaddition, if he does, I'm willing to putmoney on the table that he will not be investing the money as you do. There arealways ways to "play the game" so to speak, but given that so few hold the majority of the wealth in thiscounty, tells a tail of few actually succeeding at it. Also, just because you know how to play the game doesn’tmake you “wealthy.” People who make alot of money, are not necessarily the “wealthy”people of the country as is pointed out in “The Millionaire Next Door.” The book refers to them as “under accumulators of wealth” as they tend to live alavish lifestyle, but have very little net worth to show in comparison to theirincome, or money coming in. The authorsthemselves went to the “high class” neighborhoods only to find out that thesepeople weren’t truly wealthy. The truly wealthy,lived a much more modest lifestyleworking normal jobs, living in middle class neighborhoods.

The OP was asking how to build credit, so naturally a credit card is in order. Number two cause of bankruptcy happensto be credit card debt, the number one is medical bills. That should tell you something. Also, 88% of people who sign on to one of those “90 days same as cash” deals or “nointerest for 18 months” tend to defaultand roll over into payments with interest between 21% and 31%, basically 9 outof 10 people. It is great that you personally can do it, butstatistics show that you are in the minority. Odds are not in the favor of the borrow (It’s almost as if the bank/lenderknows this ;) )

As far as the unconventional loan is concerned, it can completely be a win win situation. My wife and I live on 50% of ourincome. We make right around a$100,000/year. 15% of that money goes into investments, so $15,000 (even at 15,000/yearinvested a with a return of 7% over 30years, we would retire with $1,416,911.79 of course with the house paid off wewill dump more into the market) . Thisleaves us $35k a year extra. Now we havea zero based budget, meaning every penny we make goes somewhere. We could save up a 50% down payment for a $250,000 home in a little over3 ½ years. That doesn’t sound likeforever, now does it? Now, even crazieris that from there, I can take out a 15year fixed rate mortgage if I need to using a unconventional loan option (If I had a zero credit score), andsave more money vs the 10% down 30 year loan! That would be paying for a house in18 years and saving hundreds of thousands of dollars, all of which can beturned around and invested.

Example of why I’m choosing a 15 year mortgage

Buy a 225,000 house (high 6% APR)

Payments for a 15-year mortgage is $1899/month

Payments for a 30-year is $1,349/month

After paying for 10 years, the 15 year mortgage balance isat $98,210 while the 30 year is at $188,292!!!! ALMOST DOUBLE!

All said and done, as a looser (meaning that we never get a raise for 30 years), I’ve calculated us out tohave a touch over 3 million in retirementmoney (retiring at 65 years old). Thiswill all be with no credit score in the next couple years. It’s exciting! Most people are planning on the government to take care of them.



There is nothing wrong with playing the game as you are and using the “free money” wisely. The problemis that it’s not “some people” that gorge themselves, it’s the MAJORITY! Saving a 19 year old kid from potentially making a bunch of stupid, costly decisions onhis credit is okay in my book. He mightwin following what you are telling him,but America and “the other 98%” are telling me that it’s a pretty slim chance. We live in a consumer society….THE MOST marketed to society of all time. We arestudied…companies spend millions of dollars doing so, and when we take out that “no interest for 18 months” loan, theyknow just how many will default and rollover into interest payments, and how many will pay it off in time. If it wasn’t going to be a fat profit in their wallet, you honestly believe they wouldoffer it? We (society) can’t wait untilwe can actually afford to pay forsomething, so we buy it on credit. I’vebeen there, I am living with the consequencesright now. In fact, I can’t name a single person I know who hasn’tstruggled with debt because it got out of control…..all starting with a creditcard (and I have multiple multimillionaires in my family).

This is nothing more than a suggestion to the OP, as was my original post. Stay out of debt. You do that,and invest wisely, I just made you a multimillionaire. Also, read Dave Ramsey’s “Total MoneyMakeover” and Tomas J Stanley & William D Danko’s “The Millionaire Next Door.” It will COMPLETELY change your view on money.

edit, to above...computer is acting weird....sorry...some words are running together. Might be a little hard to read. I did the origional in word, and for some reason it REALLY doesn't like formatting correctly on this forum

See above. Oddly, I will still end up with more money in the end. Go figure, right? :bonk:

The fact that a 15 year mortgage is cheaper than a 30 year mortgage and that living well within your means will allow you to save a lot of money for retirement means that you shouldn't get a credit card? I'm not really following the logic.

We're all agreeing that carrying credit card debt is a bad idea, but debt in general isn't bad if you're responsible. I didn't pay for my car in cash. I financed at 2.2%, then put $20K in a mutual fund. Guess what? So far, I've paid ~$120 in interest on my car loan, and I've made ~$500 (last time I checked) on the mutual fund. A few clicks of a mouse just made me $380 in the past 3 months. Cash in your pocket can make 2-8% interest, cash in someone else's pocket doesn't make you anything, and if you've got a loan that is accruing less interest than you're able to get with some easy low-risk investments, you're coming out on top.

Have to turn off "Smart" everything, because it's not.

Use Notebook for forum posts.

Chase Freedom credit card is interest free for a year. Jump on it.

Hardly. I'm saying you don't need credit to survive. I said this above. Why do people build their credit? The answer is to buy stuff. You don't "need" that stuff. If your needs are provided for (food, shelter, clothing, basic transportation), then what do you need credit for?

I'm not going to be the popular one here and I am fully aware of that. I'm not trying to win an argument, just offer another option.