I’m going to start college soon, and I’m being told by many people that I should get a credit card and “establish my credit” by making payments on things on time. People have tried to scare me by telling me that if I don’t buy a new car or a credit card via a store in the mall, I won’t be able to purchase a house in the future, because I “won’t have established good credit” and “won’t be able to get a loan”. My initial reaction is that they’re lying to me in order to sell me credit cards, but is there something to their arguments? Is it possible to get home loans without a history of good, or any credit? What’s the best option in a case like this?
Why would I need a credit card if I don’t plan on having credit in the future? I don’t need credit, and I feel we’ve been brainwashed into thinking it’s necessary.
Are there home loans that are given based on proof of income or something other than credit history?
It really seems as though people assume credit has to be a part of their lives; I’m not sure that’s true.
J M
May 20, 2010 at 11:42 pm
Unfortunately you do need past credit to get credit. Going into college you’ll get all sorts of offers. Research them for the better interest rates. Be careful of late fees and short billing cycles. Make sure it’s a reputable card. My daughter was able to get a Discover card at 18 without any problem. The most important thing is to pay it on time. ALWAYS. Just make one small purchase a month. Then pay it off. It’ll establish a credit rating. When you graduate from college you should be eligible for a ‘recent grad’ loan for a car. That will also help with a credit rating. Just don’t spend more than you can afford to pay off. It’s easy to get in the “I’ll be able to pay with my next check” habit. Not really a good idea for most people. Good luck
Robert S
May 20, 2010 at 11:52 pm
I would look for a professional credit councilor or self help book. Credit Cards can turn bad vary fast with just a few small mistakes.
B.B
May 21, 2010 at 12:24 am
If u get a credit card then only get one, like a retail card and pay it off each month and make sure u only buy small things.
Smoovy Loco
May 21, 2010 at 12:54 am
If used responsibly, it’s a great way to start building a lengthy and solid history. The trick is to not get in over your head. A credit card should be used for emergency purposes, or if you’re able to pay off small purchases. If you’re not able to pay it on time, or at all, then it’s not a good idea. The benefits like being able to rent a car, make hotel reservations, establish credit in general may not compare to the disadvantages of harassing calls of collectors when you don’t pay on time, not to mention hurting your chances of being able to get bigger things like, buying a car, a house, or even a job. Normally when you use a credit card, you have x amount of days before they start charging more money, or interest to what you already charged. That’s called a grace period. After a certain date, you’ll receive an itemized statement in the mail detailing what you charged, how much you owe, and how much additional money (finance charges) were added on. The key to using a credit card is to not to max it out, or charge it to the limit. That’s where they’ll get you. It’s bad enough to borrow money that you can’t pay all at once, but it’s even worse when more money is added on every month for borrowing it in the first place!. Like I mentioned earlier, use the card for emergencies, charge only what you know that you can pay off every month. I’ll even go as far to say that if you have the money to pay for something in cash and you use the card, put that cash that you would’ve used to buy it in a jar, cigar box, it doesn’t matter, put it and use that money to pay the bill when the statement comes in. Another thing. Don’t charge a lot to fast food. It’s a common trap that me myself fall victim to from time to time. That Big Mac or Whopper or whatever your favorite burger is wouldn’t taste so good when you’re paying daily interest on it when you charge it. Keep that in mind. I would probably get one more and that’s it. 1 in 7 Americans carry up to 10 credit cards, and the average American has 4. Me, myself I have 3 which I keep low balances and I pay off on-time, if not early every month.
Another thing is that you can report your monthly payments on practically everything that you pay every month. There’s a website (click this link) http://www.prbc.com/consumers that you can enroll in a program, that verifies, reports historical payments, and also has a bill-pay service that reports the current and future payments. The beauty of this is that this shows what the traditional credit reports do not: an accurate payment history. You can have things like rent, utilities, day care, storage, insurance, phone, cell phone, anything that you pay a month that you receive a statement for. The information reported is compiled in what’s call a Bill Payment Score, or BPS. Under the FCRA (Fair Credit Reporting Act) you can have this taken into consideration when lenders are reviewing your credit to give an accurate picture of what your credit is really like.
Krista B
May 21, 2010 at 1:43 am
I just caught your additional details…
Actually, you need credit more than you will ever understand.
Credit checks can be run on you when you apply for car insurance. Credit checks can be run on you when you set up utilities for that house you want to buy. Credit checks can be run on you when you apply for jobs, and sometimes they may request one at random after you work there. And you can be denied by all of those if there is something on there they don’t like.
Don’t let anyone fool you that you NEED a credit card. But you’ll find your adult life pretty difficult in the future if you try to avoid establishing credit. You’re simply not considered a good credit risk if you have no history of payments. If you plan to pay for you house and your car in one lump sum, in cash, then no you don’t need to establish credit, but credit checks will still be run on you to make sure that you are who you tell them you are.
Jason
May 21, 2010 at 2:23 am
Take it from someone who stands nothing to gain by telling you to build your credit — build your credit. In this day, it would be very difficult to go through life without doing so; you’ll want to buy a car, or a house…or one day you’ll have a child that you want to send to college…all of these things are very difficult to pay for with cash. Employers can even check your credit during the interview/background check process(People with bad credit are statistically bigger risks).
If you use the card responsibly, and pay it off each month, it amounts to nothing more than an interest free loan to you…and who doesn’t want that. If you have a need to carry a balance, it can still provide a necessary safety blanket to get you through a rough spot.
moviegoer_j
May 21, 2010 at 2:33 am
Yes, you should establish good credit. You won’t regret it.
However, even if you were so wealthy that you wouldn’t ever need a loan for the rest of your life, it still makes sense to use credit cards for the rewards they pay you (if you get one of the good rewards cards — details below).
Just make sure you do like my father told me: Use your card like you’re paying with cash you already have and pay off your balance every month. That way you avoid all interest and fees and can just enjoy the rewards.
As a college student, you have a handfull of good rewards cards to choose from. A couple of the better ones are the Citi mtvU card and the Citi Driver’s Edge for Students card.
Make sure you check out this rewards calculator that will calculate your rewards for the various college student rewards cards (based on *your* spending profile): http://www.creditcardtuneup.com/?card_type=College+Student . Then you can easily pick the best rewards card for your normal spending.
sun s
May 21, 2010 at 2:56 am
“Reward credit cards reward you when you spend on the credit card. Normally, you can collect rewards through 3 ways.
* It involves earning cash back on the card, it depends on the amount you spend.
* Next one involves giving points to the customers. They can be redeemed for gifts like cosmetics, shoes, water heater, mobiles and other goodies which the credit card company offers.
* The last method of reward is providing airmiles. Airmiles are highly popular reward, as many customers like to redeem them for free flights or flight upgrades. Whatever type of reward credit card you opt for, carefully note the amount or rate at which rewards will accrue and also read carefully other terms and conditions.
“
twv706
May 21, 2010 at 3:21 am
Your better off getting at least one credit card to establish credit. I was a loan officer years ago and if you start now with getting credit you will end up in good shape in the future. Just dont make the mistake like most college kids who rack up debt while in college. I telling you this from personal experience. You don’t want to end up in bankruptcy court before your life even gets started. There is a website at http://www.bad-credit-credit-card-for-people-with-bad-credit.info that has 3 different list of secured, unsecured, and prepaid credit card companies that issue credit to people with bad credit or no credit.
The answer to your mortgage question is that you do need a credit score of at least 500 to get a home mortgage loan. No credit is actually worse than bad credit. A credit score of at least 620 is preferred.
Your best option is to build credit with at least getting one credit card even if you have to get a secured card. Just keep your balances under 50% of your total credit line. Being at the max of your credit line can decrease your credit score even if all the payment are made on time.
Good Luck