2 answers

Building credit is increasingly becoming an essential part to adulthood. What are the main things an individual must know when initially building credit?

Asked Denver, Colorado

2 answers

Roger’s Answer

Updated Walnut Creek, California

There are very few things in life that I am really good or great at. But, I do enjoy a PERFECT "850" FICO Credit score. I’ve had nearly perfect credit for most of my life. I got my first VISA card when I was a junior in college. I had a $500 credit limit. When I got my first VISA bill for $100 for gas, beer, movies.... I sent VISA $1000 to pay a $100 bill. And, I had a "credit" for months where VISA actually owed me money because I had money in reserve on my VISA by paying far more than the actual bill.  (I still do this today... if my American Express bill is $5000 --  I send AMEX $7500.)  Paying MORE than your actual bill helps you with your "credit utilization score" which is a large portion of your overall FICO Credit Score.    To earn good credit, pay your bills way ahead of time, pay more than the actual bill, and never spend MORE than what you make.

Great advice above! Building your credit is basically establishing your future. If you can show that you have good character and pay bills on time then it will help you in future with getting loans with lower interest rates. It might be the difference in you getting a job you really want as a lot of employers pull your credit. If they see you are paying on time and not getting overextended with credit card debt it will give them a favorable impression of you. So start slow with what you can afford and get credit card and then build yourself up with paying like rent on time for an apartment and car loans etc. Show steady progression of being able to pay credit card on time and than that you proved you could handle rent and an auto loan.

Jeff’s Answer

Some of the most important things to know is to realize you want a long history of not using more credit than you can handle. I’ve advised many young people with their first apartments that they can establish credit history my getting a utility bill in their name (possibly with a cosigner) and make sure it’s paid on time. It’s most likely that it will be paid on time if it’s set to automatically withdraw the entire amount from someone’s checking account. If you have multiple roommates, have at least one bill in each person’s name and a mandatory meeting on the first of each month to square up the difference from last month’s bills. If you have credit cards, set them to all pay off in full from your checking account at the end of the month. This will force you to not carry a balance and always have more credit than you are using. Most agencies consider credit cards balances that are too close to the limited as maxed out and seriously hurt your credit rating.

Jeff recommends the following next steps:

  • Set up credit cards to pay off in full automatically from your checking account each month
  • Check the balance to make sure you never have more usage than money available.
  • Set up utilities to pay off in full each month from your checking account.
  • If you have roommates, have a different utility in each person’s name, set each one to pay off in full. and meet each month to settle the difference.
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