So, I’m 23, just got my first credit card. 500 dollar limit. What would you say is the best way to go about building credit? I’ve heard a few different things, from use it once, pay it off, and not use it anymore, to use it often and pay it off monthly, or buy something big and pay it off over a few months… whats my best plan?
Never charge anything you couldn’t afford to pay cash for.
[quote]DoubleSidedTape wrote:
Never charge anything you couldn’t afford to pay cash for.[/quote]
Yeah thats part of the plan. Save up, put it on the card, pay it off. I’m just not sure about the best way to go about that.
Use it at least once per month and pay it off in full and on time every month. Eventually get yourself three cards and do the same. This will build your credit up nicely. It sounds simple but it’s easy to get sucked into buying stuff that you don’t need or don’t have the money for. I agree with Doublesidedtape about not buying what you can’t afford.
If I were you I would use it only for filling my car with gas or something like that. Don’t start buying big things like expensive clothes or furniture. Be careful with the offers from other credit cards with the 0% introductory rate. These are tactics to get you sucked into using the card more and inevetibly getting into debt.
I don’t think you have to do anything special to ‘build’ a credit rating.
From what I understand its a formula with income, expenses, savings and previous loan history not just loan history which banks will use to consider giving you a loan.
I turn 23 in under month and I, in the past 2 months, I just got a $25K loan + a $5K credit card.
I have no loan history but I have a decent amount in investments (showing deligent saving) and a decent salary (showing decent servicabilty) and so everyone was happy to throw money at me.
Oh, yeah, of course dont purchase what you cant afford. Credit card for me is just a contigency for a backpacking trip coming up.
Every pay check my savings always increase or at least stay the same if I purchase something big.
to build it fast I’ve heard you have to get in debt then get out of it multiple times forget how it works though. Banks have to see that your capable of getting through tough times as well as good times.
Well I’d start by just buying things and paying it off in full every month.
I would cut the card up and send it back. Consumer debt is candy coated cancer.
Pay your bills on time.
If you want more credit ask for it.
[quote]CappedAndPlanIt wrote:
So, I’m 23, just got my first credit card. 500 dollar limit. What would you say is the best way to go about building credit? I’ve heard a few different things, from use it once, pay it off, and not use it anymore, to use it often and pay it off monthly, or buy something big and pay it off over a few months… whats my best plan?[/quote]
Dude, I didn’t even get a credit card until last year. Up until then, I used a debit card. I can honestly say that your best bet is to avoid the use of a credit card if possible and to quickly pay it off. There is always going to be something that comes up that you will feel the need to charge. Your car will break down and you will find that gadget you’ve been looking for for years on sale. Eventually, with enough instances like that, you will be in debt for a few thousand dollars.
[quote]rainjack wrote:
I would cut the card up and send it back. Consumer debt is candy coated cancer. [/quote]
Everyone doesn’t have that option. I am amazed you have been able to live like that and only wish that I could get there some day. The average guy graduating from grad school is in debt for thousands right out the gate.
In fact, I would think that the people who could actually be “debt free” by your age has to be so minimal in this country that you can’t even make up 10% of the population.
I hate credit cards…but they come in handy.
Someone broke into my car two weeks ago to steal my tv. Things like that happen…no matter how much you try to avoid charging items randomly.
If you aren’t SURE that you don’t have the discipline to not spend extra with a credit card, listen to the old-timers 
Personally, I put every purchase I can on credit card. By deferring payment on my regular purchases, It gives me the chance to put that freed-up cash to good use by making payments on the line of credit I use to leverage my portfolio. I then pay the credit cards off completely each billing period, so I never pay interest. I would call this “the correct use of credit cards”; they give you a lot of freedom in timing your cash flows.
[quote]Professor X wrote:
Everyone doesn’t have that option. I am amazed you have been able to live like that and only wish that I could get there some day. The average guy graduating from grad school is in debt for thousands right out the gate.[/quote]
I have been on both sides. Credit cards are an option that should never be exercised. I had debt from grad school - no biggie. At least I have something to show for it. A car loan - if it is for a decent used car is not so poisonous either.
But opting to be a bitch for Capital One is…well…I can’t describe my hatred for credit cards, and the fucking thieves that sell them. I think it is more dangerous to an individual than crack.
Maybe so, but if I can do it - it should be obvious to you that it’s not that damn hard. The easiest way to be debt free is to stay away from the credit cards.
Most everyone will have home debt, and most everyone will have a car payment. That’s not the shit that will bankrupt you. Unsecured consumer debt is the killer.
That’s the problem. They are TOO handy. It gets even worse when you have kids. You want them to have the best - and the 5K gold card you have in your wallet “for emergencies” will fucking disappear in a heart beat at christmas time.
Two words: Dave Ramsey.
Dave Ramsey is great. Although when you get right down to it, its just common sense.
Debt=Slavery.
As some others said…the easiest way is to just charge something small every month and pay it off every month. Pretend like you don’t have the card but make sure you use it at least once a month. This will be the best way to start building the credit. Don’t keep a high balance. To start building credit you need to also show you have credit but don’t need to use it. Having too much credit or keeping high balances will hurt your score. Just use it and be patient while your score starts to go up.
I stopped using my debit card for most anything except atm withdrawals because its too damn easy to spend money when you arent watching it come out of your hand.
I dont ever plan on getting a credit card, and if I am thinking correctly, you can build credit simply by paying your bills on time and saving money.
I do know some people who buy their gas (and only gas) on a credit card and pay it off every single month simply to accumulate the frequent flier miles…but these people also budget their gas money at the beginning of the month and put it to the side so that it is there to pay off the card the minute the bill gets there.
I’m with Aleksandr on this one. I love credit cards. I use one for nearly all of my purchases, and pay it off in full every month. It’s biggest benefit is the convenience. I also just got another with 0% financing for a year. It allows me to remodel my kitchen and bathrooms now instead of waiting until I have the money saved to start. Of course, I know that I have the self discipline to set aside X dollars a month so that I can pay it off before the intro rate ends. I also have a significant savings account should an emergency come up.
I know everybody has their own opinions and risk tolerance, but I don’t have any problem having debt. Controlled debt can be an excellent tool to help any financial situation, if you have the self-discipline to keep it controlled.
To answer the OP’s question, you need to use the card regularly. Whether you pay it off in full every month doesn’t affect your score, as long as you make the minimum payment on time. Of course it is generally wise to pay it in full. You also want to make sure you don’t have the debt built up close to your credit limit, as this will hurt your score.
Just using it and making payments will get you a good score, but ultimately what is going to hurt you the most is a lack of credit history. The only way to fix this is to take out a loan or two and repay them. Don’t take out a loan just to help your history, just wait until you take out a mortgage or legitimately need a loan.
Having a good income and funding does not help your credit score, but it will make lenders more likely to give you money.
Use the card for things you NEED to buy anyway. You can pay off the whole balance every month and avoid finance charges if you want. The amount of interest you pay isn’t tracked, only your credit limit and how close you come to it matter.
I suggest you put at LEAST the $500 limit in a saving account before you use the card just to cover your butt. CC debt builds VERY fast and sneaks up on you.
Don’t miss a payment or come within 20% of your limit.
I agree with most of the posters here that credit cards are frickin evil. I think I still owe from some beer I drank in my early twenties. As far as improving your score goes, I’ve read that with credit cards maintain your balances at 30% or less, this keeps your debt to available credit at a favorable ration for the scoring models.
The only good thing a credit card is for, are the warranties that are included when you purchase electronics with them. If I were to buy a new computer most credit cards will give you an extended warranty just for buying it on their card. Put it on the card and pay it off.
Pay your bills on time. If you have a phone bill then you have credit. You don’t necessarily need a credit card to have good credit. You just need a good payment history. Good payment history and a very low debt to income ratio trumps everything.
Do not open credit cards to get credit. Too many open credit cards, even with a zero balance, are the bane of good credit because it make one look desperate – no one wants to lend money to a desperate person. This includes in-store credit as well.