It doesn’t matter if it’s Moms, your best friend, your “boo thang” or the bank, everyone wants to be confident that when you borrow money you have the character and means to pay it back. Although Moms, your best friend, and even the “boo” may let you slide and give you the funds without requesting a credit report, don’t expect the same treatment from the bank.
In just about all cases of applying for a loan, cell phone, apartment, and even sometimes a job you will need to prove your financial worthiness with a credit report. Many times after you’ve graduated from school, landed a job that pays plenty of “stacks” and even paid back the dough you were loaned by Moms, you will still find it difficult to get approved for credit.
If you’ve gone your whole life up until this point with no credit cards or other debt, you are on the right track! However, if there is no record of your money handling decisions and with no credit history you will be viewed by creditors as risky business. Without credit history, how else could creditors know you’re not the next Allen Iverson (Apparently, he didn’t like to “Practice” saving and spending discipline either).
How do I establish a credit history if no one will give me credit do you ask? Well, we’ve laid out some suggestions here.
Secured credit card
One great way to start building your credit is with a secured credit card. A secured credit card in most ways is just like the unsecured credit card you are familiar with; however it requires a security deposit generally ranging from $300-$500 and an annual fee of about $40. This provides assurance to creditors that you will repay your debt, think of it like going bowling and swapping your Jordan’s for the funny looking clown bowling shoes, we’re almost certain that those bowling shoes won’t accidentally leaving the bowling alley.
Although, a secured credit card is backed by your funds, which may resemble a debit card, it is not a debit card at all. With debit cards your usage is not reported to the 3 major credit bureaus (Equifax, Experian, and Transunion). With a secured credit card you are not borrowing against your security deposit, but directly from the creditor and that activity is tracked and reported. Check out Bank of America’s secured card.
Last week we discussed how NOT to abuse student loans in the post Ballin’ on a Budget , and with that in mind note that repaying student loans can help build your credit. Many federal student loans are based on need and not your credit score, so in most cases you won’t be turned down. Subsequently, six months after you graduate most creditors will be hitting you with a full court press that rivals that of Basketball “non-wives” receiving child support, and expecting you to cut them a check each month. Consistent and timely payments after graduation can show that you are a responsible borrower, which can boost your credit score.
This final option, Co-Signing, is like dating a pretty girl with a bad attitude, seems like a good idea at the time, but can leave you with headache and regret. Becoming a co-signer on a credit card or loan can be a great option if the person you are co-signing with has great credit and can be relied upon to make payments (if that person exist in your circle, marry them). However, if you or the other person fails to make payments on time BOTH of your credit scores will be negatively impacted. Yep, both of you getting messed up credit “at the same damn time.” #Futurevoice
Your credit can potentially permit and prevent you from obtaining certain luxuries in life. You can try any of these credit building methods for one year and after that, your credit will likely have improved and you can move on to bigger and better things! U DEFINE SUCCESS