In This Chapter:
How To Establish Credit
Tips on how to establish credit, online credit card finders, avoiding scams.

Establishing credit concerns many people because they do not know how to go about doing it.  The key is not to let potential creditors take advantage of you because you have not established credit yet.  The best way to establish credit is to do so on low cost purchases.  This will ensure that you have the ability to pay off the bill.  If you have no credit history or have a bad credit history, anyone that gives you credit may charge you 18%.  The offers for 5% interest credit cards you get in the mail may not come to fruition for you once you fill out the application and mail it in.  You aren't in a position to be choosy.  We don't recommend using a department store card as a starting point to establish credit because they charge 19-22% interest.  Always verify the interest rate of any card you sign up to first. Gas cards are just as bad, but as long as you only use them to buy gas and pay them in full (typically $60 per month) when the bill comes, you won't pay any interest. This will help you establish credit from the ground up, while at the same time getting you in the habit of paying all your credit cards in full when they arrive.

Before you do anything to establish your credit be sure to open a checking account.  You will need a checking account to pay your bills and it is a good way to show that you are financially responsible by not overdrawing your account.

Family:  Your own family may be able to help you establish credit.  Use family money as a down payment on a loan and finance the rest yourself.  Since you will be paying a large down payment it will increase your chances of getting a first loan.

 

SCAM ALERT:
If you have not established credit and are buying a car make sure to read this.  Many dealerships have first time buyer programs or graduating college senior programs subsidized by the car manufacturer.  Some dealers may claim they have a first time buyer program, when there really is not one and they are just charging you 18% APR.  If you have a good credit card history, there is no reason to pay 18%.  They are feeding off your lack of knowledge and fear of rejection.  As a first time buyer you have all the negotiating rights that I do, and don't let any salesman tell you otherwise.  Just keep shopping for a dealer who is willing to work with you.  You may not get the car you wanted, but at least you won't be paying double the interest.  Also, first time buyers get caught up in the euphoria of buying a new car, and because they are naive, are easily persuaded by salespeople to buy all the extras, or even pay full MSRP.  Welcome to life in the real world.

 


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