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Thread: Best way to build credit?

  1. #1
    Flashaholic* BatteryCharger's Avatar
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    Default Best way to build credit?

    I'm 20, and of course have trouble getting a loan for anything over $10. [img]/ubbthreads/images/graemlins/rolleyes.gif[/img] My credit history is perfect; however, very short. Right now I have one credit card with Chevron, and that's it. I have no debt and never have, the only reason for the card is to build better credit.

    What are some other things I can do to help build my credit rating? Should I sign up for more store cards? Or a general purpose Visa/MC/ect? Should I avoid signing up for more cards? Any cards I get would be paid off every month.

  2. #2
    *Flashaholic*
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    Default Re: Best way to build credit?

    This what I did out of high school to build up credit.

    1. save up money for a large ticket item like a car.
    2. pick out car to purchase
    3. go to the bank and borrow money against your funds. it's called a secured loan.
    4. set-up monthly payback from deposited funds.
    5. do at least 2 years payout to establish credit payment history
    6. early paybacks look good too, but a payment history is best. This method will cost difference in interest charged VS earned from your funds deposited.

    Simply depositing funds for a secure loan will do the same thing. But having a goal helps save up funds.

    I purchased a 1956 Austin Healey 100-4 for $2,500 out of high school this way. Many years later, still got the Healey.

    This helped me establish my credit to far larger deals.

  3. #3

    Default Re: Best way to build credit?

    The way I built credit was when I bought a car I saved up ALL the money to buy it... went to my credit union and borrowed a $2400.00 of the amount from them with the same amount frozen in savings as collateral and payed the loan back in one year, making payments on time each month and NOT paying it back early. I was told to get credit they want to see your history of making payments on time.

    Before I did that I was turned down by discover and mastercard. I also went to sears and got a credit card and credit exactly enough to buy an air conditioner and paid that off. Three things needed to get credit:
    1:established bank account for several years with no bounced check problems
    2:good history of making payments on a large ticket item for an extended period of time unto payoff.
    3:Full time job for several years during this time.

    After I had paid off the car loan a year later I got two credit cards. I needed them because during that time I was buying computer parts through a magazine (mail order) and COD is a lot of trouble and costs usually 5-10.00 more PER ORDER. Store cards help credit some... it is paying off big ticket items that get you established not paying off a monthly gas bill or clothes allowance.

  4. #4
    Flashaholic* BatteryCharger's Avatar
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    Default Re: Best way to build credit?

    I plan on buying both a boat and a pickup within the next 6 months, totaling about $10,000, which I will have in cash. If I was to get a secured loan for those, do I have to pay intrest? [img]/ubbthreads/images/graemlins/thinking.gif[/img] Or is it kind of like paying a credit card off every month?

  5. #5

    Default Re: Best way to build credit?

    You have to pay interest on the loan but you should get a good rate.... I would go to your credit union or bank and ASK the loan department specifically what you should do keeping in mine what we (cy & I) have said and they can set up a loan for you. I wouldn't take out a $10,000.00 but maybe a $2-3,000.00 one. That would give you large enough payments every month to look good on a credit report I would think.

  6. #6
    Flashaholic* BatteryCharger's Avatar
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    Default Re: Best way to build credit?

    What kind of rates are normal on a secured loan?

  7. #7
    *Flashaholic*
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    Default Re: Best way to build credit?

    don't know what the going rate in your area. In Okla. the spread is 3 points or 3% difference between CD interest and interest charged.

  8. #8
    Flashaholic* turbodog's Avatar
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    Default Re: Best way to build credit?

    It used to be (at least here in MS) that a bank could not charge over 2% more on a loan to you made against secured money. So if they were paying 1% on your savings, a loan against this could not be charged over 3% interest.

    If you want a little free advice...... (even if you don't want it, here it comes).

    If you're 20 years old, you have a tremendous advantage of time on your side. Scrape together $3000 and go invest this in vanguard's 500 index fund (mutual fund). If you invested ONLY $3000 right now in that fund, you'd have approx $280,000 in 40 years at age 60. And that's if you made no more investments or added to it any.

    This also looks good on a loan app, and can be used for collateral.

    You're young so get out and have some fun, but if you start investing now if will be the SINGLE BEST financial decision you EVER make.

  9. #9

    Default Re: Best way to build credit?

    Get an American Express.

    You have to pay the balance off each month so there's no interest to worry about.

    There's also no temptation to over extend yourself since you can't pay it off over time.

    We use ours for almost everything, gas, food, etc...

    Eric

  10. #10
    Flashaholic* powernoodle's Avatar
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    Default Re: Best way to build credit?

    Here's a wacky idea: you don't need a credit rating. Want to buy a house? Employment stability coupled with paying your rent on time every time will qualify you. Don't rely on what I say - ask a mortgage broker. Buying a car, furniture, big screen tv? Pay cash. If you gotta use someone else's money to buy a big screen, for example, maybe you don't need it. [img]/ubbthreads/images/graemlins/smile.gif[/img]

    As for using a credit card, a number of studies show that you spend more with a cc than you do when paying cash. Makes sense, since one hurts and one doesn't. And if you have to rent a car or buy on the internet, debit cards work just fine.

    I'm a nutbag when it comes to debt-avoidance. [img]/ubbthreads/images/graemlins/happy14.gif[/img] We have no mortgage (paid it off), no car payments (paid cash, thank you), no student loans, no nothing. Think about all of the spare cash you'll have by getting out of debt. Cash for more flashlights!

    Listen to Turbodog and consider what you can do over the next 50 years by freeing up your income to work for you rather than giving it to GMAC and Visa. I wish I could go back 20 years and start funding annual IRAs . . . .

    Thanks for the chance to rant. [img]/ubbthreads/images/graemlins/smile.gif[/img]


    best regards

  11. #11
    *Flashaholic*
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    Default Re: Best way to build credit?

    Of course getting to no debt status with paid off mortgages is your goal. Then you have income from your paid off mortgages.

    My recommended tactic for years has been to pay for cash on Cars or large ticket items. Using the Golden rule, if you don't have the cash to pay for a car. then don't buy it.

    Save that monthly cash flow for mortage payments. Don't know what the exact monthly payment nowdays for a nice new car w/insurance.

    In terms of cashflow a 3 year $30k debt counts the same as a $150K (aprox) 30 year debt.

    I respectfully disagree and agree with PN above. Having excellent credit is always an asset. Just because you have credit cards doesn't mean you have to use them. You never know what emergency will spring up.

    The advice above about starting investing young is Golden.

    Mutual funds work great for some. Real estate is my prefered vehicle after losing my a** in the stock market. what ever works for you. The important thing is to get started.

  12. #12
    Flashaholic*
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    Default Re: Best way to build credit?

    http://www.fatwallet.com/c/52/

    Check the Most Commonly Asked Questions thread. Do some searching over there. They know what they're talking about... [img]/ubbthreads/images/graemlins/wink.gif[/img]

    Mark

  13. #13
    Flashaholic* turbodog's Avatar
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    Default Re: Best way to build credit?

    [ QUOTE ]
    powernoodle said:
    Here's a wacky idea: you don't need a credit rating. Want to buy a house? Employment stability coupled with paying your rent on time every time will qualify you. Don't rely on what I say - ask a mortgage broker. Buying a car, furniture, big screen tv? Pay cash. If you gotta use someone else's money to buy a big screen, for example, maybe you don't need it. [img]/ubbthreads/images/graemlins/smile.gif[/img]

    As for using a credit card, a number of studies show that you spend more with a cc than you do when paying cash. Makes sense, since one hurts and one doesn't. And if you have to rent a car or buy on the internet, debit cards work just fine.

    I'm a nutbag when it comes to debt-avoidance. [img]/ubbthreads/images/graemlins/happy14.gif[/img] We have no mortgage (paid it off), no car payments (paid cash, thank you), no student loans, no nothing. Think about all of the spare cash you'll have by getting out of debt. Cash for more flashlights!

    Listen to Turbodog and consider what you can do over the next 50 years by freeing up your income to work for you rather than giving it to GMAC and Visa. I wish I could go back 20 years and start funding annual IRAs . . . .

    Thanks for the chance to rant. [img]/ubbthreads/images/graemlins/smile.gif[/img]


    best regards

    [/ QUOTE ]

    Right on dude.

  14. #14
    Flashaholic* 3rd_shift's Avatar
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    Default Re: Best way to build credit?

    A credit union membership is a great way to build credit.
    Some credit unions are only a buck to join. [img]/ubbthreads/images/graemlins/thumbsup.gif[/img]
    Beware though, some smaller credit unions are run no better than your local fast food restaurant. [img]/ubbthreads/images/graemlins/str.gif[/img]

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