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How to build a good credit rating

H

hellfreeze2

Junior Member
So I just turned 18 a few weeks back, and I've been trying to get a CC, but of course, I couldn't get one. Now Bank of America offered me a secured card...I sent $99 to open a savings account, and in return I get a card with a $500 limit on it.

So my question is, what's the best way to build a good credit rating? I've heard each choice the same amount of times, hence my confusion.

$497 will be charged to the account. Do I...

A) Pay the entire $497 off the first month

OR

B) Pay the minimal payments for 2-3 months, then pay off the balance

Like I said, I've heard each choice evenly, so yeah. Thanks for you help.
 
Pay most of it off, but keep a small balance on the card. Once you have established a good payment history, keep the card active, and pay it off. A better way to boost the credit is if you are planning on getting a car, get a loan in your name, with a co-signer (most likely). Make all of the payments on time, and your credit will get a nice lift from that.
 
Here's what you should do for at least 1 year (1.5 years is even better)

1) DO NOT apply for any other credit cards or loans, every credit inquiry will count against you.
2) DO NOT request an increase on your BOFA secured credit card, $500 is plenty to start up your credit.
3) Contrary to what others will say, payoff your entire balance every month avoiding any interest.
4) Use your credit card frequently to show that you are using it and you are RESPONSIBLE with credit.
5) Make all your payments on time, never be late. IF you cannot pay the entire balance in full that's ok at least make the minimum payment due which is probably $20.
6) After having your credit card for 1 year, go to your BOFA branch and apply for a regular unsecured credit card ... IF you are approved, close your existing SECURED credit card, get your $99 back plus interest earned.
7) Repeat steps 1-5 for 1 more year then the credit card offers will start FLYING in.

I have advised my wife and family members on these very conservative steps, 2 years after first establishing their credit ... they are always easily approved for $5-10k credit cards with no problems at all.
 
What I've heard:

With a credit card, keeping it active and the balance payed off is the best way to raise your score. Maxing out the card and then paying it off will do you no more good then charging $20 and paying it off. The key here is to use it to make purchases every month, but then paying off the balance.

If you have no credit and want to establish it, go to a bank and get a loan for, say, $3000. Pay $1000 back over 3 months and you will have a nice boost to your non-existant credit.

But that's just what I've heard.
 
BOFA...LMAO!!

thanks for the help guys

i'm just pissed cuz for the past 1-2 months i have been using my ATM card, and instead i could have been using the secured CC and started building my record

hmmm....the $3000 loan idea sounds good. but don't they check your credit rating on that? i only have about 6k in my CD account and ~1k in my checking account
 
Originally posted by: hellfreeze
BOFA...LMAO!!

thanks for the help guys

i'm just pissed cuz for the past 1-2 months i have been using my ATM card, and instead i could have been using the secured CC and started building my record

hmmm....the $3000 loan idea sounds good. but don't they check your credit rating on that? i only have about 6k in my CD account and ~1k in my checking account
Click to expand...

You didn't know BOFA = Bank of America?

WAMU = Washington Mutual

Chase = JP Morgan Chase Manhattan Bank

and more

Just remember do not use your credit card at an ATM for cash advances because interest begins accruing immediately. So if you withdraw $100 from an ATM using your credit card today, in 5 days you will owe $100 + 5 days of interest ... there is no "interest free grace period" on cash advances. But if you buy something from the store or on the internet, definitely use your credit card!

If you apply for a $3,000 loan right now you will be declined, your credit will be checked and it will appear as a credit inquiry.

Follow my 7 steps, trust me, I used to be a credit card loan officer so I know what I'm talking about.
 
Originally posted by: RossMAN
Originally posted by: hellfreeze
BOFA...LMAO!!

thanks for the help guys

i'm just pissed cuz for the past 1-2 months i have been using my ATM card, and instead i could have been using the secured CC and started building my record

hmmm....the $3000 loan idea sounds good. but don't they check your credit rating on that? i only have about 6k in my CD account and ~1k in my checking account
Click to expand...

You didn't know BOFA = Bank of America?

WAMU = Washington Mutual

Chase = JP Morgan Chase Manhattan Bank

and more

Just remember do not use your credit card at an ATM for cash advances because interest begins accruing immediately. So if you withdraw $100 from an ATM using your credit card today, in 5 days you will owe $100 + 5 days of interest ... there is no "interest free grace period" on cash advances. But if you buy something from the store or on the internet, definitely use your credit card!

If you apply for a $3,000 loan right now you will be declined, your credit will be checked and it will appear as a credit inquiry.

Follow my 7 steps, trust me, I used to be a credit card loan officer so I know what I'm talking about.
Click to expand...


The other problem with cash advances (at least with some banks) is, even if you pay off whatever is owed according to your bill, by the time they recieve it, more interest has accumulated. My dad says its a real PITA to pay it ALL off.
 
aye. so no cash advance. gonna be ghetto when i go into 7-11 with a CC. LOL! might as well put $40 down on a "prepaid 7-11 card" using a CC

BOFA = Bank of f***** America. HAHAHAHA

wait...i tried getting a CC from...5 other companies, but at this point i have no credit....will it still be held against me, or will that start once i actually have a CC?

loan officer, eh? evil!!! 😛
 
Originally posted by: BlinderBomber
Originally posted by: RossMAN
Originally posted by: hellfreeze
BOFA...LMAO!!

thanks for the help guys

i'm just pissed cuz for the past 1-2 months i have been using my ATM card, and instead i could have been using the secured CC and started building my record

hmmm....the $3000 loan idea sounds good. but don't they check your credit rating on that? i only have about 6k in my CD account and ~1k in my checking account
Click to expand...

You didn't know BOFA = Bank of America?

WAMU = Washington Mutual

Chase = JP Morgan Chase Manhattan Bank

and more

Just remember do not use your credit card at an ATM for cash advances because interest begins accruing immediately. So if you withdraw $100 from an ATM using your credit card today, in 5 days you will owe $100 + 5 days of interest ... there is no "interest free grace period" on cash advances. But if you buy something from the store or on the internet, definitely use your credit card!

If you apply for a $3,000 loan right now you will be declined, your credit will be checked and it will appear as a credit inquiry.

Follow my 7 steps, trust me, I used to be a credit card loan officer so I know what I'm talking about.
Click to expand...


The other problem with cash advances (at least with some banks) is, even if you pay off whatever is owed according to your bill, by the time they recieve it, more interest has accumulated. My dad says its a real PITA to pay it ALL off.
Click to expand...

I know what you mean but there are a few ways to payoff your cash advance balance in an accurate manner:
1) If your credit card company has a branch presence in your city. For instance you have a Bank of America credit card, call their customer service ask for a PAYOFF QUOTE (which includes accrued interest) not a balance. They tell you it's $500.16 go to any local BOFA branch, write them a check for $500.16 ask them to post it immediately as in today. Problem solved.
2) Online banking at www.bankofamerica.com usually if you make an online payment debiting your checking account before 1:00 PM EDT it will post that same day.
3) Call your credit card's customer service number and ask to do a payment over the phone, unfortunately there's usually a $10 service fee to do this.
 
5 other cc's and you're considering the $3,000 loan option?

LOL your credit bureau must be filled to the top with credit inquiries, they usually fall off after 12 months.

That's why step #1 is so important, STOP APPLYING FOR DAMN CREDIT CARDS/LOANS!!!
 
Is there any sort of juggling that should be going on between multiple credit cards, balance wise? Keep it below half the limit, etc?

Also, should you always rely on automatic increases? I am assuming most banks will raise your limit once a year or so. Or am I mistaken?
 
Originally posted by: hellfreeze

$497 will be charged to the account. Do I...

A) Pay the entire $497 off the first month

OR

B) Pay the minimal payments for 2-3 months, then pay off the balance
Click to expand...
Choice B is such a common myth that I'm not surprized you heard it. Put yourself in your CC companies shoes. Suppose you have a special going on of 0% interest for 6 months (quite typical). Suppose there is a $20 minimum monthly fee. Suppose you make a $500 loan to a complete stranger. With each loan you get a 4% fee so 4% of that $500 is $20. There are two possibilities.
1) On the first 6 months the stranger barely scrapes buy making the payments. You have no idea if you will get your money back. You aren't even earning interest on this loan. And since the CC is maxed out you lose out on any additional 4% purchase fees. You cannot loan that money to other people or make any money off of it since this person isn't paying back the bulk of your loan. Total profit: $20.
2) This stranger pays off that $500 immediately so you know he/she has the money to pay you and he/she is setting up a good record of getting your money back to you soon. That stranger then charges another $500 and pays it off. In fact suppose this stranger does this twice a month - charging $500 and paying it back within a week or two - and it continues for 6 months. That means each month you earn 4% of $1000 - or $240 in pure profit.

Which sounds better to you, $20 profit with the chance of never seeing the rest of your loan or $240 and a good customer you trust?
 
Originally posted by: Orsorum
Is there any sort of juggling that should be going on between multiple credit cards, balance wise? Keep it below half the limit, etc?

Also, should you always rely on automatic increases? I am assuming most banks will raise your limit once a year or so. Or am I mistaken?
Click to expand...

The only cc which ever automatically increased my limit was my Meier & Frank department store card. Started off at $300 and within a year I was up to $1,500 finally paid off and closed the card.
 
rossman,

when i go into old navy, gap, structure, american eagle, etc., they all offer me 10% off that day's purchase if i sign up for their store card. being the chubbywallettype, i invariably do so but when i get the card, i i mmeditely pay off the account and have it closed.

does that negative effect my credit rating?

also, i recently got a new credit card with a 0% interest rate on purchases and balance transfers (no fees either) and have tranfserred/purchased 4800 worth of stuff onto it (5000 dollar limit). is it looked upon poorly to kind of "hold" money on a card in that fashion? the interest wont begin kicking in for a full year and i figured i would keep it there till i graduate from college in the winter at which point i can begin paying it off.

finally, i have about 1600 more i want to transfer from my mbna to my new amazon card (hehe that 30 dollar GC sucked me in) but they charge a 5%/$50 fee. do you think they would waive it if i called and asked nicely?

thanks for your help...
 
Always pay it off if you can. The lower the balance on your revolving accounts (credit cards), the better your score. Always. People who tell you to run a balance are ill-informed.

BTW, ALWAYS pay everything by the due date, even if you can only afford the minimum at that time. It hurts your score BAD if you don't.
 
Originally posted by: RossMAN
Here's what you should do for at least 1 year (1.5 years is even better)

1) DO NOT apply for any other credit cards or loans, every credit inquiry will count against you.
2) DO NOT request an increase on your BOFA secured credit card, $500 is plenty to start up your credit.
3) Contrary to what others will say, payoff your entire balance every month avoiding any interest.
4) Use your credit card frequently to show that you are using it and you are RESPONSIBLE with credit.
5) Make all your payments on time, never be late. IF you cannot pay the entire balance in full that's ok at least make the minimum payment due which is probably $20.
6) After having your credit card for 1 year, go to your BOFA branch and apply for a regular unsecured credit card ... IF you are approved, close your existing SECURED credit card, get your $99 back plus interest earned.
7) Repeat steps 1-5 for 1 more year then the credit card offers will start FLYING in.

I have advised my wife and family members on these very conservative steps, 2 years after first establishing their credit ... they are always easily approved for $5-10k credit cards with no problems at all.
Click to expand...

Excatly what i would do, you have to be resposable with credit, to get more credit

Dogg

 
Originally posted by: RossMAN
Originally posted by: Orsorum
Is there any sort of juggling that should be going on between multiple credit cards, balance wise? Keep it below half the limit, etc?

Also, should you always rely on automatic increases? I am assuming most banks will raise your limit once a year or so. Or am I mistaken?
Click to expand...

The only cc which ever automatically increased my limit was my Meier & Frank department store card. Started off at $300 and within a year I was up to $1,500 finally paid off and closed the card.
Click to expand...

Interesting. I received an automatic increase last year in August on my BECU Visa, I've only had the Discover for about 2 months. I am considering asking for an increase on the Visa, I'm starting to make more large purchases (tuition payments, airline tickets, etc), and I would prefer to be able to put them on one card.

Can I ask for an increase even if I don't have one main job? I do a lot of freelance work and have a fairly steady income stream, but I am still a college student.
 
Broohaha,

Regarding the department store credit card offers for 10% off offers. I would only apply if you are reasonably certain you will be approved (why waste an inquiry if you think you'll be declined) --and-- if you're making a HUGE purchase to make it worth while. If you're just spending $50 don't apply for their cc just to save $5. However if you're buying $300 of clothes that's a $30 savings, making it wortwhile IMHO.

I would begin paying down your balances immediately, do not wait, it will just snowball on you. Trust me, that's what's happened to me and millions of other Americans.

Earlier this year CitiBank MasterCard approved me for a $2000 card I was going to toss away the offer until I saw 0% APR on balance transfers with no fees until November 2004 (this was back in May 2003 I think). Getting 1.5 years of 0% APR on balance transfer enticed me, so I applied online, got approved, then I transferred $2,000 from an old card which I was paying 11.99%. The best part is I have BUDGETED to payoff $150.50 per month to payoff the balance around October 2003. Right now my balance is $300 just two more payments of $150.50 in Sep and Oct and I'm done. Then I'll call them up, threaten to cancel the card, they'll transfer me to the retention department who will either say I could care less or will offer me additional 0% balance transfer months in order to keep me as a customer.

Pay now, not later!
 
Originally posted by: Orsorum
Originally posted by: RossMAN
Originally posted by: Orsorum
Is there any sort of juggling that should be going on between multiple credit cards, balance wise? Keep it below half the limit, etc?

Also, should you always rely on automatic increases? I am assuming most banks will raise your limit once a year or so. Or am I mistaken?
Click to expand...

The only cc which ever automatically increased my limit was my Meier & Frank department store card. Started off at $300 and within a year I was up to $1,500 finally paid off and closed the card.
Click to expand...

Interesting. I received an automatic increase last year in August on my BECU Visa, I've only had the Discover for about 2 months. I am considering asking for an increase on the Visa, I'm starting to make more large purchases (tuition payments, airline tickets, etc), and I would prefer to be able to put them on one card.

Can I ask for an increase even if I don't have one main job? I do a lot of freelance work and have a fairly steady income stream, but I am still a college student.
Click to expand...

Everytime you ask for an increase they ask who your employer is, I don't think it would sit well with them if you said UNEMPLOYED or STUDENT ... I wouldn't ask for an increase if I were you.

You were probably given automatic credit limit increases because unlike me, you're not over extended credit. Open my wallet and you'll see all sorts of shiny plastic, EVIL PLASTIC! If only I could go back in time, 10 years ago I wouldn't have screwed up and pissed away my 20's like I did.
 
Originally posted by: RossMAN
5 other cc's and you're considering the $3,000 loan option?

LOL your credit bureau must be filled to the top with credit inquiries, they usually fall off after 12 months.

That's why step #1 is so important, STOP APPLYING FOR DAMN CREDIT CARDS/LOANS!!!
Click to expand...
heh. i stated the $3,000 option just cuz it was mentioned in the thread. lol. $3,000 loans suck

dullard: true, that's what i was thinking, since they'd be more confident giving credit. but what got me confused is what my friend told me, who worked at a credit place..."if you have a 5% or so APR, and u make the minimal payment, the credit card company makes some money off of you due to the interest, while if you pay it off they don't make any money off of you"

so yeah, that's what got me confused

but yeah, now that i am getting this secured CC, I won't apply anymore. oh well. i hope it doesn't hurt me that much since i applied at different places only due to the fact that i was trying to get my first card. *shrug*

thanks for the help rossman

how ironic...CC offers on the side of the board. LOL! sooo tempting 😛
 
Originally posted by: RossMAN
Everytime you ask for an increase they ask who your employer is, I don't think it would sit well with them if you said UNEMPLOYED or STUDENT ... I wouldn't ask for an increase if I were you.

You were probably given automatic credit limit increases because unlike me, you're not over extended credit. Open my wallet and you'll see all sorts of shiny plastic, EVIL PLASTIC! If only I could go back in time, 10 years ago I wouldn't have screwed up and pissed away my 20's like I did.
Click to expand...

Well, I could just tell them the University of Washington. I'm on the payroll of at least two different companies, I just have no idea what my annual income is. 😛
 
Secured Visa/MC are very good. They help you build your credit really fast. Just make sure you DON'T MISS any payments. Otherwise you'll be SOL for a long time. I had to learn the hard way and I FUBAR (almost) and I'm finally on the road to recovery (credit wise). I currently have a $1,000.00 secured Visa card through my local credit union. By far the best CC I've ever had. I know the interest rates aren't the greatest and they are a little high but hey I'm making payments, and re-building my credit. I'm happy! Just keep up the GOOD habits of credit/spending -- and you'll be FINE.
 
Originally posted by: hellfreeze
while if you pay it off they don't make any money off of you"
Click to expand...
That is the false part. They all earn ~4% with every purchase. It is a fee the stores must pay in order to use the CC service. That is where the CC companies make their money. Remember the CC company has to borrow money and pay interest in order for you to borrow money from them. (Which is why they always say they charge x% over the going rate since they have to pay the going rate to borrow the money to give to you). Thus they really don't make much from interest. Most of their profits is the ~4% per purchase and fees (such as over the limit or late fees).

The basics are covered already for good credit:
1) Don't apply for any cards, even store cards. Each application hurts you. Don't hurt yourself to save $5 bucks at Sears or some other store. Bad credit can cost you thousands - far more than that $5 you saved.
2) Always pay it off in full as soon as you can.
3) Always pay in time.
4) Don't go over your limit.
5) Call and cancel all store cards you might still have (cutting them up doesn't cancel it).
6) Pay all other bills in full and on time (rent, any loans, utilities, etc.)
 
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