Improving my credit
Jul 17, 2008 at 12:49 PM Thread Starter Post #1 of 31

Whitebread

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At age 20, I'm passing through a gray area in life where the typical young American man is gaining independence but is not yet fully emapcipated from his parents. I'm currently earning about 600 dollars a week at an engineering firm I'm interning so I've taken over responsibilities that my parents once took care of themselves. Food, clothing, car payments, small bill payments so on and so fourth. Its a step towards becomming a self sustaining and responsible man but I still have a ways to go.

The last few days I haven't been doing anything because one of the companies my employer is collaborating with is very slow on returning information I need to finish the project I've been working on. I've taken time to, among other things, contemplate ways I can be more fiscally responsible. The first thing that came to mind is credit, if only because my father is so irresponsible with his. The only thing consistant is his inconsistancy. This habbit has come to affect my finances directly through numerous late student load payments. I've recieved many a call from collection agencies for payments that were 60 or 70 days late; payments which he TOLD me he paid............
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Needless to say, this negligence reflects poorly on my credit history, eventhough I'm not responsible for the tardiness. A creditor isn't going to be empathetic if I tell them daddy didn't pay when AES asked him too......

I'm not to interested in buying a new car anytime within the next few years. I have a good car that I take great care of. I'd be suprized if I didn't get another 100,000 miles out of it. Besides, I'd rather let someone else deal with the depreciation. I would like to be able to purchase a small condo or house as soon as I can. Crappy credit, especially in this bad market wont allow it. One method I thought of was to get a no fee credit card. Up until this point, I've used cash and debit cards to make purchases and I usually spend sparingly unless I'm guying some toy I want or spending cash to maintain the car. I figured I could buy food and occasionally gas (I will probably be driving once a week when school starts) with the card to keep the utilization ratio low. Pay back everything on time and in full (I've paid all my bills on time and always pay for everything I purchase up front) and make sure the card sits in my sock drawer when I know I won't be needing it.

I figured this is a respectable way to get a line of credit started and improve my financial standing. What do you guys think?

Sorry for the long post!
 
Jul 17, 2008 at 1:57 PM Post #2 of 31

gorgak

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There is no known formula for credit performance. The three credit reporting companies keep their formulas as Trade Secrets. So any method of raising a credit score is based on speculation.

That said, i think the most important thing is a history of on-time payments. I suggest you get a credit card with a lower interest, use it as you suggested and make a payment on it monthly. If you can, transfer your student loans to your name and make the payments yourself. No matter how diligently you pay your credit card, if your name is on the student loans and the payments are not always being paid on time, you might not make any gains on your credit score.

The other part of my speculative formula is time. Don't expect too high of a credit score until you've had a longer credit history. Buying a condo or house is a good idea and a good way to build credit.

Also, NO VARIABLE RATE HOME LOANS, you sound like your already pretty financially savvy, definitely ahead of the game.
 
Jul 17, 2008 at 2:26 PM Post #4 of 31

gilency

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good advise from our fellow head-fiers. I am impressed with your degree of responsibility. You are doing fine. Don't get into debt, only one credit card paying in full monthly (don't use it too much). Your time for a house will come. Good luck!
 
Jul 17, 2008 at 2:29 PM Post #5 of 31

Whitebread

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To address the student loans.

I'm the primary borrower on all of my loans with my mother co-signing on all of them. At age 20 with no credit history and only internships and 85 dollar a week jobs on the side, no company would loan me a dime (I'm sure you know this though). The real kicker in this situation is that eventhough my mother so-signed on the loans, my father elected to have the first loan (the loan in question) be repaid before I graduate and made himself responsible for said payments. So while he continues to pay late, my mothers credit is getting brought down and he gets no mention of these payments on his reports. The guarantor has threatened defaultment at least 3 times previously and my mother is tired of it. I suspect most of the payments will be coming from her for the next two years so that may take care of that.

As for the effect of the CC, I wasn't expecting miracles with a 500 dollar limit. It's just the first step in a line of prudent financial moves I plan to make as I wait shrewdly until I can purchase my first home.
The next big step would be to save a few thousand and try my hand at investing (with a small amount mind you).

As for home loans, the variable rate debacle was one of the first things I was made aware of. I haven't actually seen anyone in my area go under because their variable rate went sky high, but I've read all about the horror stories on line.

Now, what kind of credit card should I look into? I don't really know anything about specific companies, fees, laws, practices and trends. Visa, Discover, AMEX and Master Card (NO capital one!) are the first companies that come to mind. But what about my banks? I've got 2 accounts with BoA and one with a credit union near my school.
 
Jul 17, 2008 at 2:46 PM Post #6 of 31

acidbasement

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Sounds like a tough situation. Whatever you need to do to get that student loan fiasco taken care of, do that first, because it will obviously undo anything else you try to do, credit-rating-wise. Aside from that, you're on the right track with the credit card idea. You can also get store credit cards, which are easier to get than major credit cards - I think they have higher interest rates though, so beware. With any credit card, you'll be better off if you pay it off monthly before accruing interest. Good luck!
 
Jul 17, 2008 at 2:57 PM Post #7 of 31

Whitebread

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Just want to run through some things for clarification:

Interest on CCs are accured monthly. If the balance is paid or the card is not used I will not incur any fees unless something is agreed upon when I sign for the card, correct?
So, no matter the interest rate, if I pay off the balance before the end of the monthly cycle I won't incur any extra fees or payments?

I can't imagine the CC company would want me to do that, how are they going to make any money??
 
Jul 17, 2008 at 2:57 PM Post #8 of 31

gorgak

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Quote:

Originally Posted by Whitebread /img/forum/go_quote.gif

Now, what kind of credit card should I look into? I don't really know anything about specific companies, fees, laws, practices and trends. Visa, Discover, AMEX and Master Card (NO capital one!) are the first companies that come to mind. But what about my banks? I've got 2 accounts with BoA and one with a credit union near my school.



Yeah, capital one doesn't report to credit agencies so that wouldn't help you at all.

I would go for a visa based on acceptability all over the world. I would also recommend one from Bank of America since you already have accounts there. If you have online access to the accounts it's really easy. You log into your account, apply for a card, then you can easily make payments and manage both your bank account and the credit card from your bank of america online account, it's pretty cool, that's how I do my BOA Credit Card. You would probably be looking at a rate between 7% and 12% from a BOA credit card, maybe not the best interest rate out there, but a good place to start. I like the ease of use factor.

It's your first card, so you might start with a small limit, but as you build credit with it, you can ask them to raise your credit limit and lower the interest rate, so then you would have a higher available credit which would be seen by the credit agencies, and that's a good thing.
 
Jul 17, 2008 at 3:00 PM Post #9 of 31

Whitebread

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Quote:

Originally Posted by gilency /img/forum/go_quote.gif
good advise from our fellow head-fiers. I am impressed with your degree of responsibility. You are doing fine. Don't get into debt, only one credit card paying in full monthly (don't use it too much). Your time for a house will come. Good luck!


Thanks!
 
Jul 17, 2008 at 3:00 PM Post #10 of 31

gorgak

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Quote:

Originally Posted by Whitebread /img/forum/go_quote.gif
So, no matter the interest rate, if I pay off the balance before the end of the monthly cycle I won't incur any extra fees or payments?

I can't imagine the CC company would want me to do that, how are they going to make any money??



It's based on the credit used during the billing period. So if you charge $100 during a monthly billing period, the 7% of that amount would be charged to you on the next billing cycle.

Edit: The catch is usually that you can only make one payment on the card per month. You can't make a payment until after the first billing cycle.

Edit 2: So when you make a payment, you are paying on the last billing cycle. When you pay the July bill, you are actually paying on the charges from the June cycle, in essence.

Edit 3: And, yes, if you have no charges on the card, you will not owe any interest or fees for that cycle. This is assuming you get a card that has no annual or montly fees, otherwise, once a year/once a month an annual/monthly fee is assessed and added to your account.
 
Jul 17, 2008 at 3:01 PM Post #11 of 31

JadeEast

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As has been mentioned the actual method of calculation is a "trade secret" I've heard that not using more than 1/2 your available credit maybe part of it. I also believe that in the US you are able to get your score once a year from one of the agencies free by law. I'm not in the US but you may want to look into it yourself and see where you stand.
 
Jul 17, 2008 at 3:09 PM Post #12 of 31

Whitebread

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Quote:

Originally Posted by gorgak /img/forum/go_quote.gif
It's based on the credit used during the billing period. So if you charge $100 during a monthly billing period, the 7% of that amount would be charged to you on the next billing cycle.

Edit: The catch is usually that you can only make one payment on the card per month. You can't make a payment until after the first billing cycle.

Edit 2: So when you make a payment, you are paying on the last billing cycle. When you pay the July bill, you are actually paying on the charges from the June cycle, in essence.



So, it would behove me to pay in full right as the billing cycle ends. That will cover the balance inccured during that cycle as well as the interest incured during the last.


I checked my credit score a few months ago after dealing with another late payment. I do believe it was somewhere in the high 400s. I don't remember the name of the service I used, but it was online and was free for the first time. I unaffiliated myself with the service after getting my number since I didn't need regular updates.
 
Jul 17, 2008 at 3:21 PM Post #13 of 31

leftnose

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Quote:

Originally Posted by Whitebread /img/forum/go_quote.gif
Now, what kind of credit card should I look into? I don't really know anything about specific companies, fees, laws, practices and trends. Visa, Discover, AMEX and Master Card (NO capital one!).


Visa, Discover, AMEX, MasterCard, et. al are clearing systems. Credit Cards are issued by banks and they use those clearing systems to process payments. I would suggest getting an MC or Visa as they are the most widely accepted.

I personally use a Citibank Shell MasterCard. You get a rebate of 1% of everything you buy applied toward Shell Gas. If you buy Shell Gas, you get a rebate of 5%. The rebate is applied to your bill automatically. If you live in an area that has Shell stations, this is a good deal. There is an annual fee of $25 but it is waived if you make 8 purchases per year at a Shell.

If you get a credit card, the most important thing to do is never carry a balance. Whenever you get your bill, pay it in full before the due date. As long as you do this, you won't have to pay any interest or late fees.
 
Jul 17, 2008 at 3:25 PM Post #14 of 31

gorgak

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Quote:

Originally Posted by Whitebread /img/forum/go_quote.gif
So, it would behove me to pay in full right as the billing cycle ends. That will cover the balance inccured during that cycle as well as the interest incured during the last.

I unaffiliated myself with the service after getting my number since I didn't need regular updates.



Yes, if you pay the full balance for your monthly payment, it will bring your account to zero, and no further interest will be assessed, assuming you havn't used the card between the end of the last billing cycle and the time you paid the balance off. Online management of the account is easier in that you can see what your entire balance is at the time of payment. It takes about a week between the end of the billing cycle and when you receive your bill in the mail.

With those regular updates, what they do is tell you that your credit report has changed, and if you want to know what the change is, you have to pay.
 
Jul 17, 2008 at 3:34 PM Post #15 of 31

gorgak

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Quote:

Originally Posted by leftnose /img/forum/go_quote.gif
If you get a credit card, the most important thing to do is never carry a balance. Whenever you get your bill, pay it in full before the due date. As long as you do this, you won't have to pay any interest or late fees.


Carrying a balance and making on-time monthly payments might actually help your credit score more than paying the full balance every month. Some people say that carrying a balance and paying the minimum payment every month helps boost your score even more.

Again, everyone has an opinion on credit scoring, but no one really knows what works and what doesn't, just do what is the most comfortable for you.

I think this would be an obtainable and good card for a first credit card.
 

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