In my last post, I detailed a personal journey, another time-old tale of ‘Man finds Credit Score.’ The plot reached a fulfilling end, at least in the sense that I finally found what I was searching for. But alas, only at the cost of learning an ugly truth: My score was not quite the beauty I’d long hoped she’d be — largely due to the fact that I’d never even owned a credit card. Without a proper score, my ability to secure loans or mortgages would be severely hindered, and the terms offered would be less beneficial to me. Luckily, a young gentleman such as myself has plenty of time to change his ways and make himself a more attractive credit user. Besides, the silver lining in my failing grade is that I now have a great topic for my second post: how to improve your credit score. If I had scored higher, I’d have to figure out something else to write about.
Let’s start with the basics.
How to establish credit history
First, you’re gonna need a line of credit (a credit card). By the time you’re applying for a mortgage, you’ll want to have at least 3 — but one will do to start. Just like with finding your score, there are a lot of different options to consider here. This time, there’s no ‘one size fits all’ solution. You can apply for a card from your bank or a credit union, or from a vendor you frequent, like Target or Best Buy. Any of these will work for your first card, but a store card might be easier to get. Once you’ve chosen where to apply, you’ll likely be able to select from among a few different cards. The options available to you and the terms they contain will depend heavily on your income, current credit history and other factors.
It’s important to examine the options you have and choose carefully based on what best fits your needs. A few things to look out for:
- Annual Fees: Some cards require you to pay an annual fee. If you’re anything like me, you prefer not to pay fees when given the choice. (If paying fees is your jam, the one thing that gets you up every morning…I’m happy for you. You’ve found a perfect match.)
- Interest Rates: Essentially, this will tell you how much additional money you will owe if you don’t pay in full each month. I’ve been warned that credit debt, in particular, can build upon itself VERY QUICKLY, and the higher your interest rate the faster it constructs.
- Rewards: Some cards will give you reward points or cash back for your spending. Some will reward more heavily for different types of purchases. If you want a rewards card, try to match up your last few months of spending to see how your purchases would fare against different options. If you don’t have a car, a card that heavily rewards payments at the pump might not be the best fit. If I ever find a card offering triple points on nachos con carne, I’ll be buying multiple homes in the Hamptons sometime in the near future.
I chose to go over my options first online, and then more in depth with a representative at my bank. Finding the right card is important, but it’s barely half the battle. Using your credit card isn’t enough to build your score. You have to use it responsibly. In the next segment, I’ll try to fill you in on all the tips I learned about doing just that!