A couple of weeks ago, I posted about 4 Ways to Get Initial Credit, and I wanted to do a follow-up about the best options that are out there.
The fact that you need to build credit is a reality in the world that we live in. Unless you plan on saving up and paying cash for a house, having a decent credit rating should be important (not an ultimate priority though).
1. Ask the bank or credit union where you currently have a checking or savings account if they’ll give you an unsecured credit card.
If you have a relatively long-standing relationship with a bank or credit union (via a checking or savings account), then it’s very likely they’d be willing to open a credit card in your name.
However, if you’ve had overdraft charges and have mishandled your checking/savings account, then it’s unlikely this option is going to work for you.
If you’re looking to get initial credit, asking your bank or credit union is the first option you should consider.
2. Secured Credit Cards
If the bank you’re currently using won’t lend you an unsecured credit card, then it’s highly unlikely any other lenders will either.
You should save yourself the hassle, trouble, and potential rip-offs (cards that will only lend to you with a 28% interest rate) and seek a Secured Credit Card.
As I mentioned in the previous post, a secured card simply requires that you put down a deposit in advance of getting the card. The deposit will be your credit limit and this deposit is acts as a safety net for the lender in the event that you were ever unable to pay your minimum monthly payment.
Some people scoff at the notion they should have to pay money in advance for a credit line, and there are some that simply don’t have the money to put towards the deposit.
Well, if you don’t have the money to pay the deposit, then I’d suggest that you shouldn’t look to build your credit at this time. If you’re in this boat the likelihood of you abusing the credit (and relying on it) is fairly substantial.
If you simply have a problem with the principle of putting the money down, I’d encourage you to reconsider because you don’t have many other options when it comes to getting initial credit.
1. Using Money as Collateral
This it the same concept as the secured credit card, but this option involves having your current bank (one where you have a checking/savings account) give you a loan while using the money in your bank accounts as collateral.
The reason this option isn’t good is because it would involve you getting a loan to make some sort of purchase (i.e. a car, furniture, computer, etc.).
Everything I believe and stand for revolves around paying cash for those types of purchases and expenses. You shouldn’t be going into debt to buy a car. AND YOU CERTAINTLY shouldn’t go into debt to buy furniture or any technology gadget.
1. Getting a Car Loan
If you don’t have credit and you’re looking for somewhere to start, getting a car loan is a terrible idea.
There is no doubt that you’ll find dealers that will approve you and lend you the money, but it doesn’t mean you should do it!
If you have “0” credit, then your loan is going to come with an astronomical interest rate. Furthermore, you just shouldn’t go into debt to buy a car.
This is a bad idea any way you try to look at it.
2. Finding a Co-Signer
Some may be shocked to see this option listed as one of the “worst ways to get initial credit.”
But the fact is that it’s a bad idea.
Having your mom, dad, grandparent, spouse, or anybody else for that matter, co-sign for a student loan, credit card, house, or car purchase is only going to lead to trouble.
We have this problem in our country with believing that ‘oh, that will never happen to us.’ But the reality is, if you co-sign for a loan there is a chance that the person you’re co-signing for might not be able to pay and keep up their end of the bargain.
This then leaves the co-signer fully responsible for the remaining debt.
I personally used this option when I went to college and needed student loans. While my family members aren’t overly concerned about me paying my monthly payments, I’ve been asked a few different times as to when the debt was going to be paid off.
Since they co-signed for the loan, the debt shows up on their credit reports as well as mine.
While I currently don’t have any issues making the minimum monthly payments, I know that if anything were to happen, visiting my parents (or my grandparent) is going to be a little awkward.
I realize that most co-signers don’t get stuck with the debt. However, there are people that do and those situations lead to disaster and broken relationships.
It’s simply not worth the risk.
Picture by phanlop88.
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