Welcome to the “2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers.
Today’s question is about building a healthy credit history; specifically, how someone just starting out or starting over can have stellar credit as soon as possible.
Watch the following video and you’ll pick up some valuable info. Or, if you prefer, scroll down to read the full transcript and find out what I said.
You also can learn how to send in a question of your own below.
For more information, check out “7 Easy Ways to Build Credit From Scratch” and “Boost Your Credit Score Fast With These 7 Moves.” You can also go to the search at the top of this page, put in the word “credit” and find plenty of information on just about everything relating to this topic.
Got a question of your own to ask? Scroll down past the transcript.
Don’t want to watch? Here’s what I said in the video
Hello, and welcome to your “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this answer is brought to you by MoneyTalksNews.com, serving up the best in personal finance news and advice since 1991.
Today’s question comes to us from Dan:
“I just graduated from college and want to build a good credit history so I can buy a house as soon as possible. What should I do?”
Well, Dan, I’ve got four things for you:
Thing No. 1: Get a little help
One thing you might try to help accelerate the credit-building process is to become an authorized user on someone else’s credit card. Find somebody who’s got really great credit and ask them if you can get a credit card under their account. You’re now sharing their credit history — part of which transfers to you, which helps your credit.
This may sound like a risky thing for the person you’re hitting on, but it doesn’t have to be. You can simply say, “Make me an authorized user.” And before they freak out, add, “But wait: I don’t want a credit card.” They’re going to get a credit card in your name, but they’re not going to give it to you; they’re going to hold on to it. That way, their credit is helping you build your credit and you’re not putting their credit at risk.
Thing No. 2: Join a credit union
The first thing I did when I got out of college a million years ago was to join a credit union. It’s a little easier to get credit from a credit union than a bank, because credit unions are smaller and more often locally owned. You make a little deposit and become a member. After doing so, you’re probably going to be able to borrow money more easily than you can at a big commercial bank. This is also a good place for you to get a credit card.
Icing on the cake: Credit union interest rates are typically higher on your savings and lower when you borrow. So, they’re great all the way around. You can find out how to join a credit union and learn more about them in articles like “How to Pick the Best Credit Union for You” and “Ask Stacy: Which Are Best — Banks or Credit Unions?”
Thing No. 3: Get a secured credit card
If you find you can’t get a credit card at a credit union, try getting a secured card. “Secured” means that you’re going to put up a deposit to match the amount of credit you get. In other words, you’ll put $500 in the bank or credit union, and then you’ll get a $500 credit line. Since the bank’s taking virtually no risk, it’s easy to get a secured credit card.
Make sure, however, they’re reporting your on-time payments to the credit reporting agencies. They’re not required to, and some of them don’t. And if they don’t report, you don’t build your credit score. You can find secured cards on the Credit Card page of our Solutions Center. Just look under the category called “Bad Credit.”
Thing No. 4: The secret to building credit
This is probably not what you want to hear, Dan, but the best way to build credit is to pay your bills on time, every time for long periods of time.
I know this is may sound frustrating because you want instant results. But the truth is that it takes a long time to build a good credit history, and about 15 minutes to trash it. So, as we think about building credit, let us not simply focus on the things we can do, but on the things we shouldn’t do, which is screw up.
Get in over your head and pay bills late, Dan, and before you know it, you’re going to be up to your eyeballs in debt, just like everyone else in America.
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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.
I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.
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