We’ve learned that we need to use credit cards in order to attain good credit. Why? Because it makes up 65% of our score. 30% being our available credit/utilization. And 35% being payment history. Credit cards are very important to our score.
We’ve also learned that in order to get a credit card, lenders will check our credit report. They look for a proven record that you pay your bills on time based on your payment history; but, without having a credit card there is no proven record of on-time payments. This is a struggle that many Americans face when they are building their credit score.
An easy solution is getting a secured credit card. A secured credit card is when the borrower (you) gives the bank a specified dollar amount. This amount, usually around $200-$500 becomes your credit limit. The bank issues you a credit card and holds your deposit as it acts as your credit limit.
With secured credit cards there is still a possibility that you may be denied, and this happens often Even if you are applying with your bank that you have been banking at for years. When choosing a card, follow these steps:
Choosing Your First Credit Card
1. Check your credit report before applying. This will allow you to know exactly what’s on your credit report and get a better idea of what will happen when you apply. You don’t want to risk a new inquiry on your credit report just to get denied 2. Make sure that the card reports to the 3 major bureaus: Transunion, Equifax, and Experian. Regular, monthly payments is one of the fastest ways to build credit, but it’s pointless if these payments are reported to the credit bureaus. 3. Note any annual or monthly fees that the card may have. An average annual fee for a secured credit card is around $50.
Take Charge Credit Consulting recommends this card to our clients as they work with people who are building/rebuilding their credit and we’ve never seen anyone get denied.
Once you get your card, there are 2 important things you need to do:
Using Your First Credit Card
1. Keep the balance low! We recommend putting a small, reoccurring charge on the card. For example, Netflix. And not using it for anything else. 2. Pay the balances on time! The purpose of this card is establish payment history, one late payment will be detrimental to your credit score.
Unfortunately, your first credit card isn’t meant to for big purchases. The goal is to use this card very responsibly for about a year then move on to better credit cards. Then you have the control to compare interest rates, credit limits, card benefits, and credit card rewards. Imagine putting your purchases on your credit card each month (and paying it back monthly) and getting $150 back in cash back. Getting money back for money you were already going to spend is genius! This is what’s available to you after using your first credit card responsibly.