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What do I need to know about credit?
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Situation: Turned 18 a week ago. Moving out within the year. I want (well, need) to establish credit so I can adult well.
Know too that you aren't the only ones i'm going to for advice, and i'm not just gonna jump at the first suggestion and go.

Pretty much I just want to know, what's the smartest/safest/ "best", way to build credit?

I have a few ideas but let's hear yours. Also any good/bad stories and experiences from your lives in regards to this. Let me learn from all of you
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Re: What do I need to know about credit? [Koala Bear] [ In reply to ]
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How responsible and mature are you? Honest assessment.
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Re: What do I need to know about credit? [windywave] [ In reply to ]
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Maturity: pretty high. I personally feel like I have a good grasp on reality, and can assess both my strengths and weaknesses well. And I'd say I have plenty of both. Overall, short answer, on the higher end of maturity for 18 year old males.

Responsibility: this is probably one of my better traits. I'm already budgeting and looking into preparing and setting up my future well, school work isn't too much of an issue, I work part time in a warehouse and not trying to be cocky, but am one of the more focused, determined workers. Going to school this fall for mechanical engineering.

Can I be more mature, and more responsible? Of course. I know where my faults are, and am always working at them. But I'd say I stack up pretty well right now.
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Re: What do I need to know about credit? [Koala Bear] [ In reply to ]
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Several ways, but it depends on how disciplined you are.

First, apply for a secured credit card. Secured credit cards are like debit cards in that your credit limit is tied to the amount you have in the account tied to the card. Use it regularly the establish a pattern. Eventually, you can get an unsecured credit card.

Second, you can get a co-signer on an unsecured card. That will get you the card. Make sure you pay it off every month. Use it regularly, but in moderation and pay it off.

Third, rent something. An apartment is best. You may need a co-signer, but get your name on the lease. Never, ever be late with rent.

You can also get your name on an auto lease or auto loan for a new or used car. Again, you likely need a co-signer. But, pay on time every time and build your credit.

You should also look into a credit-builder loan. They are usually offered by credit unions or community banks. Basically, you get approved for a loan, but you don't actually get the money until the loan is fully paid. So, for example, you get a loan for $1000 with monthly payments of $100. You don't get the money. Instead, it is like a forced savings account. You pay $100 per month. When the loan amount is fully paid, you get the $1000 cash. The payments are reported to credit services just like a regular loan. The purpose of these loans is to built a credit history. You can actually do this a couple times and build a good credit history.

If there are no dogs in Heaven, then when I die I want to go where they went. - Will Rogers

Emery's Third Coast Triathlon | Tri Wisconsin Triathlon Team | Push Endurance | GLWR
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Re: What do I need to know about credit? [Koala Bear] [ In reply to ]
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what JSA said. you need to borrow money and pay it back on time, even if you don't need it. secured credit cards are great. just put $1000 or $2000 down on a credit card and then start paying. maybe set it up so that minimum payments are made automatically so that you NEVER miss a payment. and then don't cancel these accounts until you need to. the longer you hold these accounts the better.

you'll be surprised how quickly you get your credit score up there. just be careful! it's much easier to borrow money than it is to pay it back and EVERYBODY has learned that lesson, usually with a bit of pain.


Dan Empfield
aka Slowman
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Re: What do I need to know about credit? [Koala Bear] [ In reply to ]
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Good advice so far. But always remember that "credit" isn't free money. Eventually you have to pay the piper and borrowed money usually comes with a heavy surcharge. Some things most people buy on credit such as your house or vehicle. Never buy things you really don't need on credit and understand the difference between "wants" and "needs".
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Re: What do I need to know about credit? [JSA] [ In reply to ]
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Thank you for the advice, it's very appreciated.
I was just talking too with my parents and we're discussing something small, like a credit card from a gas station for example.
Buy the gas, set aside money to pay it off every month. Does this seem like it would be reasonable to do?

What I like about even this is if I spend $25 on gas and put it on the card, I would just take 25 cash out of my bank account, put it in an envelope (figuratively, or even literally), and pay it at the end of the month.

I don't know, thoughts?
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Re: What do I need to know about credit? [Koala Bear] [ In reply to ]
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Yep. That's a smart way to do it. It takes a ton of discipline. But it is worth it.

If there are no dogs in Heaven, then when I die I want to go where they went. - Will Rogers

Emery's Third Coast Triathlon | Tri Wisconsin Triathlon Team | Push Endurance | GLWR
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Re: What do I need to know about credit? [JSA] [ In reply to ]
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I feel like this is a way I could do. "Spending" the money on the card, and take away the money from my checking account so that it's effectively not there to spend anymore. Then at the end of the month when the bill is due, pull the put aside money out, and pay it. And my job, while nothing special, is more than enough to buy gas once a week, so it's not money I'd be struggling for. There should be no reason why I couldn't make a payment.

I'll definitly do some more research though, and take suggestions of course. The advice so far is great, thank you very much
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Re: What do I need to know about credit? [Koala Bear] [ In reply to ]
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Koala Bear wrote:
I feel like this is a way I could do. "Spending" the money on the card, and take away the money from my checking account so that it's effectively not there to spend anymore. Then at the end of the month when the bill is due, pull the put aside money out, and pay it. And my job, while nothing special, is more than enough to buy gas once a week, so it's not money I'd be struggling for. There should be no reason why I couldn't make a payment.

I'll definitly do some more research though, and take suggestions of course. The advice so far is great, thank you very much

Look into Debitize. It does what you are saying automatically.
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Re: What do I need to know about credit? [Koala Bear] [ In reply to ]
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Koala Bear wrote:
I feel like this is a way I could do. "Spending" the money on the card, and take away the money from my checking account so that it's effectively not there to spend anymore. Then at the end of the month when the bill is due, pull the put aside money out, and pay it. And my job, while nothing special, is more than enough to buy gas once a week, so it's not money I'd be struggling for. There should be no reason why I couldn't make a payment.

I'll definitly do some more research though, and take suggestions of course. The advice so far is great, thank you very much

Expanding from what JSA said a bit....

Don't charge over half of your credit line. So, if your card has a $1000 limit, don't charge more than $500. Also, I would suggest setting up auto payment from your checking account at your bank to pay the card in full each month. This eliminates "setting aside money". Just keep track of what your charging and what's in your bank account.

Welcome to adult hood. Sorry you have to grow up, it's not much fun having bills!
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Re: What do I need to know about credit? [Koala Bear] [ In reply to ]
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Koala Bear wrote:
Thank you for the advice, it's very appreciated.
I was just talking too with my parents and we're discussing something small, like a credit card from a gas station for example.
Buy the gas, set aside money to pay it off every month. Does this seem like it would be reasonable to do?

What I like about even this is if I spend $25 on gas and put it on the card, I would just take 25 cash out of my bank account, put it in an envelope (figuratively, or even literally), and pay it at the end of the month.

I don't know, thoughts?

Great advice to so far. As an individual you now have to make the most important decision in your adult life; Do you become like the other 99% of America and live your life in hopeless growing debt or do you decide to join the 1% of us that have next to zero debt and live within our means? It's no joking matter:

"Americans have now borrowed more money than they had at the height of the credit bubble in 2008, just as the global financial system began to collapse.

The Federal Reserve Bank of New York said Wednesday that total household debt in the United States had reached a new peak — $12.7 trillion — in the first three months of the year, another milestone in the long, slow recovery of the nation’s economy."

Here's a rule everyone should have tattooed on their forehead - Never buy anything you can't pay off in 30 days.

Too few people really understand that the consequences of debt are horrible. Growing up I watched my parents struggle with debt and learned at an early age the value of saving and having no debt. It's been a great lesson that I wish more people would learn before making bad financial mistakes.

"If one does not know to which port one is sailing, no wind is favorable." - Lucius Annaeus Seneca
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Re: What do I need to know about credit? [Koala Bear] [ In reply to ]
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You're already well ahead of your peers. Good for you.
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Re: What do I need to know about credit? [Koala Bear] [ In reply to ]
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Way back in the day, I used to run credit apps on folks who wanted to buy jewelry on credit. The biggest hits (well, at that time, which was 1987) to your credit are late payments, especially if they go past 30 days. Folks who had multiple 90-120 day late payments had terrible credit scores. And everything you make a monthly payment on is fair game, from rent to cars to phone. So, in addition to what everyone else has told you about securing credit and paying it off, make sure you are also not getting delinquent on other things as well, as that can hammer your score.

___________________________________________________
Taco cat spelled backwards is....taco cat.
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Re: What do I need to know about credit? [Koala Bear] [ In reply to ]
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Best money move I made was max out a credit card at 19 in a foreign country. Realized I never wanted to do that again when my limit was $1k.

There's a lot of little things you can do- but it feels like you are putting a lot of thought into this- why do you need your credit rating so high? I feel like if you are aware of choices like it sounds that you are there you would be better off focusing on mechanical engineering and your part time job than taking out credit building loans and thinking about paying them back. Through the course of normal growth -small limit credit card, rent as long as you pay on time your credit rating should be fine. Cell phone account is another way to add to your credit history- pay on time. But working a few more hours to lower or avoid student loans IMO will be a better use of your time than trying to get the best credit rating in your late teens/ early twenties. (That said I'm one of those weird avoid debt people).
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Re: What do I need to know about credit? [JSA] [ In reply to ]
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Coming back to this, I've been doing a ton of saving, working, research, and school.

I;ve got a few apartments I'm going to go checkout (moving out in the early summer). Was looking into the credit building loans you mentioned, and went to see if the credit union I use offers this. Turns out they do, but I know very little (or at least, the more I learn the more I feel this way :) ) and wanted a second opinion. Here is the loan in question.

https://stcu.org/credit_fit_loans.html


Any advice or thoughts on the rates/terms etc.? I don't really have any figures close to me in my life I can ask so here I am :)
I am actually going in later today for unrelated business so may ask if they think this is a good fit. Id love some advice from someone with no vested interest in it though.


Thank you all in advance
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Re: What do I need to know about credit? [Koala Bear] [ In reply to ]
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Credit cards have almost become a necessity in modern life. Want to rent a car credit card etc. You can do without but its a pain. As someone else said credit card not for anything you cannot pay off in 30 days. Beyond that don't buy depreciating assets on credit. Buying a home on credit okay. Buying a car, snowmobile, boat on credit not so good.

Life is full of froth and trouble, two things stand in stone
Kindness in another's troubles, courage in one's own
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Re: What do I need to know about credit? [Koala Bear] [ In reply to ]
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You set up your cc payments to be full balance at end of month so you do not carry a balance.
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Re: What do I need to know about credit? [jkca1] [ In reply to ]
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Leverage and debt are not bad. Used correctly and appropriately they are extremely useful.

You try buying a house that you can pay off in 30 days............i know thats not what you meant but debt is not universally bad

I'd never finance a car as an example but i routinely get cc balance transfers at 0% fixed for 4 years with 3% transfer fee.

So my mortgage, as an example is 3%. If i can guarantee to clear the cc balance transfer. I can take 40-50k at 3%. Immediately pay it off my mortgage saving my self 6k in mortgage interest payments for a cc fee of 1500 over 4 years.

Obviously if you cant afford to pay it back you are f$$ked but if you can the debt is helpful.

This is a bit of a diversion and using credit responsibly is a must but having zero debt may not be the optimal strategy.
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Re: What do I need to know about credit? [Koala Bear] [ In reply to ]
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Have you applied for any credit cards? A credit building loan will certainly help build your credit, but it will cost you that 5.25% (taken from the link). A credit card can be a free way to build your credit as long as you are responsible and pay it off each month. Even if the limit is $250 bucks, put your gas on it and pay it off each month. You'd be surprised how fast the amount they are willing to give you grows. It may take until you have an income from a full time job, but it will explode if you are responsible. Use it and pay it off and they will throw money at you. In the past 7 years since I graduated college, I think I went from a $5k limit, to probably having over $100k in credit card limits available to m. I have never used anything remotely close to that, but I use cards to pay for anything I can. I have 2 that I use and a few that just stay open and in the safe that are constantly sending me emails to up my limit. Plus I get points on everything I buy, so that's nice. I pay off every month, so I don't get charged interest. It all started because my parents put my name on a card for gas and books while in school. That original card probably had a $1k limit, but it set me up to get that first card on my own. I was lucky to have that, and realize not everyone may have that option. But if you can find anything to open one, it will help.

I also took out a small student loan which helped out. Literally like $1500 bucks that I paid back very quickly after graduating. But it built up some history.

I've never had any issue getting the best rates for houses, cars, insurance, etc.. And none of it happened on purpose, just that one little card my parents opened and the student loan taken out on a wimb.
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Re: What do I need to know about credit? [Koala Bear] [ In reply to ]
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Lots of good info here. I agree pay it off every month. I have heard, not 100% sure, but pay it off between the day you get the bill and the day its due. That builds your credit score.

Now the most important thing I need to stress: No matter how responsible you are, you will learn that it is extremely easy to pay for things with a card. Its not 'how much cash do I have in my wallet or how is my bank account doing" Its swipe and walk away until you see your bill. It is very easy to get into a debt snowball...

You want good debt stories, listen to David Ramsey podcasts. You will hear stories from people who really got themselves in trouble.
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Re: What do I need to know about credit? [AndysStrongAle] [ In reply to ]
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I have heard, not 100% sure, but pay it off between the day you get the bill and the day its due. That builds your credit score.

I think this is only necessary if you are using a large percentage of your available credit. If you stay under 30%, then it doesn't really matter as long as you pay by the due date. You don't get charged interest, and that amount sitting on your credit report isn't bad. Now if you are using 90% of your available credit, even though you pay it off before it's due, it may have time to show up on your report as someone overextending themselves even if you haven't gotten to the point of getting a ding on your report due to late payment or having to pay interest. That's the reason it's good to have your credit limit constantly increasing, so that you don't have to worry about that. Don't spend more just because they gave you more. Just use it as a cushion to reduce your usage percentage.
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Re: What do I need to know about credit? [KG6] [ In reply to ]
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This is my next step. I was looking at a few, and there’s a couple that say they’re for people who don’t have a credit history/are starting out. Class is starting in just a few minutes so I’ll ask some questions on them in a little bit.

I plan on using it for gas every month, and that’s it. I know exactly how much gas I use, and can budget that out to always have set aside to pay off the card.
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Re: What do I need to know about credit? [Koala Bear] [ In reply to ]
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Get a CC soon, and keep it forever, the age of your credit matters.

As mentioned, keep you utilization under 30%, or 10% preferably. 50/30/10 are the levels that the credit bureaus look at, but you also want to use it, $0 balances don't help you. $10 or 10% is the mantra for building credit.

Your balance is reported on the closing date, so know what that date is and make sure your balance is $10 or 10% on that date.

Be careful shopping for an apartment, you don't want them to pull your credit until you really know where you want to live. Every hard inquiry is going to go against you.

It's going to take time, and there isn't too much you can do to build your credit, but any mistakes can easily crush your score.
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Re: What do I need to know about credit? [Koala Bear] [ In reply to ]
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Stay out of debt. Get a credit card and pay it off every month.
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