By Jon L. Ten Haagen, CFP ®
To build a credit rating, you have to have at least one credit card account for at least six months and have your activity reporting to the credit bureaus. If you are just starting out you may need to get a secured credit card. This is a card backed up by a cash deposit you put up. The deposited amount is usually the credit limit. Use the card to make purchases, and make sure you pay off the charges before the due date. Credit card rates are almost always extremely high (upwards of 20 percent).
Another option is to get a co-signer who has established credit. The co-signer is responsible for all debts incurred so make sure you are responsible. This helping hand from a friend or relative will help you get a good credit rating when you start.
If you are renting an apartment or house, companies like Rental Kharma and RentTrack will put your rent bill on your credit report which will help build your credit score.
Building a good credit score takes time. Get good habits like paying on time and not running up your card to the max. Do not open too many credit cards at once in your name, but if you do have a number of credit cards, do not close an account.. Leaving it open will show the length of time you have the card and your history of paying.
One thing I have observed over the years is that when you close out a credit card, it will reduce you total credit score. Instead, find a card with the same limit and switch to it when you close the original card. With the credit card companies coming up with more benefits, be careful which one you go for.
Today there are many cards which do not have an annual fee, and many cards offer 1-, 2- and even 3-percent cash back. Review the card choices which come your way, and make sure you make a wise choice.
A good credit score will affect your ability to get low-interest rates on a car purchase, a new home, and new credit cards. They may also be checked as part of job applications or securing rental housing.
There are three major credit scoring companies – Experian, Equifax and Transunion. Each one will give you a free score every 12 months so stagger the time of year you ask for each one. Perhaps ask each company for a score every four months (January, May and September) so there will not be an overlap. You can also go to AnnualCreditReport.com.
Be careful when using a credit card – It is easy to buy something when there is not an immediate need. At the end of each month you want to be able to pay your bills, especially when you are starting out. You want to prove to the world that you can handle a card and the debt which builds up with it.
Huntington’s Jon L. Ten Haagen, CFP, runs Ten Haagen Financial Services, Inc., a full-service independent financial planning firm, and he is here to answer your questions. In this bi-monthly column, Ten Haagen will answer your financial questions and help you with his expert financial advice. Don’t be shy, our expert is here for you, so feel free to ask away! Email your questions to firstname.lastname@example.org today, and let our expert help you.
*Ten Haagen is an Investment Advisor Representative offering securities and advisory services offered through Royal Alliance Associates, Inc., member of FINRA/SIPC, and a registered investment advisor. He is also an active community member, serving on several nonprofit boards and as executive officer of the Greater Huntington Boating Council.
**BACK IN HUNTINGTON: The offices of Ten Haagen Financial Services, Inc. have moved back to 191 New York Ave., Huntington. Friends and clients are welcome to stop by, check out the new office and share a cup of coffee with the expert!