Cash is King, but Credit is Power!

by TeamIWP on 13. Mar, 2009 in Personal Finance Investing

Cash is King but Credit is Power. We are bombarded with news of Americans with bad credit. However, what if someone does not have credit at all? A lot of young adults do not have a credit history. Not having a credit history does not give you a magical three digit number called your FICO SCORE. Without the FICO SCORE it makes it hard for creditors to grant you financing or credit cards. If you do not have a credit history trying to establish one can be a catch 22. This is because you need the lenders to give you credit. However, most lenders guidelines are based on your credit history/credit score.

Getting started to build a credit history when you do not have one.

1) One of the first places to start is with your local utility company. For example, Nicor Gas reports every month to the credit bureaus. Thus helping you start a credit history.

2) Go to one of the local banks in your area and speak to a personal banker. There you can get a secure certificate of deposit (CD) or a secure credit card. Typically you will have to deposit at least $500.You can get a secure credit card from various sources but normally they will have higher fee or interest rate than the local banks. A secure account simply means that your (cd) or credit card is tied to your cash deposit. Therefore if you do not pay, the bank or creditor will take the cash as payment.

3) Another option is to open a retail account such as one from department store, a furniture store or a gas cards. Generally you should avoid these types of cards, but their rules are not as restrictive like most lenders.

If you where to create one account from each of the three resources listed above it will put you on a path to establishing an excellent credit history thus an excellent credit score.

Remember it is your responsible to pay your creditors on time and with the utility companies you need to pay them in full each month even if you set up a payment plan. Be discipline and remember that credit cards are not free money.

Once you have at least three established accounts and two to three months has passed, pull your credit report at annualcreditreport.com (you are entitled to a free report each year). Check your report to see if your new accounts are being reported. After three months, if they are not reporting, call the banks or the creditor that you have your payments too.

In closing, remember credit score is built over time. Therefore, it is critical that you are being responsible in how you used it to establish credit. Otherwise, you could be reading how to repair your damaged credit score.

Anthony Finch

Nextstep Finanical

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