Credit Building Tactics
I recently saw the need to quickly build my credit and didn't know how to go about doing this. I meet with a mortgage broker as the reason I wanted to build my credit stemmed from the desire to purchase a house. Up to this point I had no credit. I paid for college on my own, never had car payments, never had a credit card! When I told this to my broker along with my desire to purchase a home, he suggested that I build my credit as quickly as possible. Here are the steps that I took in order to make this happen.
Start looking for cards immediately
I used creditcards.com to begin my search. Now with no credit, limited credit, low credit or hurt credit, you will not be able to qualify for many of the promoted cards on the site. Trust me, I tried. I found the best luck starting with student cards, or cards created for low credit users. I recommend looking for something with no annual fees and some form of reward system that interests you. APR doesn't matter for my plan (I'll explain this later on.). I found 3 cards that interested me and applied for them all. It was pretty simple to fill out the online form. With the recent Dodd-Frank legislation, the information should be very clear for you to see what you are signing up for. No annual fee means that it is free to use the card without any fees. Most yearly fees are expensive and you don’t want to pay for it. Finding a reward system is nice because we will be using these and if you can get miles, points, or cash back then go for it! Chances are with these cards is that the issuing company will set a low credit limit. That’s fine. Mine was around $1,000. But for what I recommend using it for that doesn’t matter.
Get 2-3 cards
I recommend applying for 3 cards and then going back if you don’t get qualified for some reason. It’d be bad if you signed up for 10 then actually got all those cards. So start small and if you don’t get the card you wanted try a similar card or one with fewer rewards. The reason we want a few is to prove that we can take out debt and pay it off. That’s the next step.
This is the fun and dangerous part. You must be extremely careful when using your cards so you don’t overspend. The plan is as follows. Use each card for a recurring monthly purchase that you had in the first place. I’m not telling you to go spend extra money. Just change from spending cash or using your debit card to using the credit card. For instance, I put all my gas purchases on one card and all my food purchases on another. My budget for each was approximately $200 every month. Now, at the end of each month PAY THEM OFF. This is important. This proves that you are able to take out debt and repay it. Remember when earlier I said, the APR didn’t matter? The reason for this is because you will pay the card off each month and will not incur any interest on the card.
If you follow these simple steps, then in a few months you will see a significant increase in your credit score! It worked well for me and I made an offer on a house this week!
Please note, that if you are in credit card debt, then you should seek help in getting out. I highly recommend using the Dave Ramsey plan. It worked really well for me. His book is great, but you should also take his course: Financial Peace University. It can be found at his website daveramsey.com.