ICFE eNEWS #17-31 - August 29th 2017
How To Establish Credit For The First Time?
By Jim Garnett, a/k/a Ask Mr.G, a member of the ICFE's Board of Educational Advisors
Establishing credit for the first time is not complicated,
but it does require a bit of time. You see, to have "good
credit," one must establish a "history" of using credit
responsibly. Creating this "history" will require 9-12 months
because it needs to be long enough to establish a pattern of
Your history is reported as it happens to the
three major credit bureaus and comprises the details of your
credit report. Those in the credit industry will view your past
performance (our history) as a predictor of your future
Let me explain why such a plan as this
works. Let's say your cousin John asks you to loan him $200. If
you seriously considered making the loan, you could determine
how "risky" it would be by investigating John's past loan
history. In other words, did he pay back what he promised to pay
back in a timely manner?
If you find that he did, you
would be more comfortable loaning him the money, than if you
find his history revealed he did not pay back what he promised.
You would use his past performance to predict his future
So, to show the credit industry that you are
a responsible borrower, you must establish a record of how you
have used credit wisely in the past. That record speaks louder
than your words of promise could ever speak.
good plan to establish that pattern of payments, and thus,
establish your good credit:
1. Get a personal credit
card. The purpose of this card is for one reason alone - to
build a record showing your responsible use of credit. If you
have never had a credit card before, you may be required to get
what is known as a "secured" card. This secured credit card will
require a money deposit that will serve as a guarantee that you
are going to pay what you borrow. If you do not, the money you
deposited as security will be forfeited to pay your bill.
Lenders will use your credit report to determine if you have
a track record of using credit wisely.
The interest rate
and perks on the card are not relevant. You will use this card
only to create a good track record, and you will not be paying
interest or finance charges - ever.
2. Make one purchase
on the card each month. It does not need to be a large purchase,
just a purchase, and preferably for something you actually need.
You make sure you have the money on hand to pay for whatever
purchase you make.
3. Pay the bill in full each month.
When you receive the monthly statement, send the total payment
right away. Paying the entire balance each month will keep you
from being charged any interest. This also will help you
establish the habit of not allowing credit card balances to roll
over to the next month.
Remember, it is not necessary to
show unpaid balances on your credit report to establish your
credit. You only need show that you pay your bills as you
Making a "history" requires a bit of time,
actually the longer time, the better. I would suggest a minimum
period of 9-12 months will satisfy most lenders. After that
time, you should be able to get a credit card with no security
requirement if you wish.
Establishing credit for the
first time is not difficult to do, but it does require a plan
whereby your good payment history shows you to be responsible in
repaying your debts.
It all boils down to this: "Your
past predicts your future."
© Jim Garnett, The Debt Doctor
AskMrG Consulting, LLC
2216 SW 35th Street
Ankeny, IA 50023
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Paul S. Richard
President - Executive Director
Institute of Consumer Financial Education (ICFE)
About the ICFE:
The Institute of Consumer Financial Education (ICFE) was founded in 1982 by
the late Loren Dunton (creator of the Certified Financial Planner (CFP)
designation and founder of the College for Financial Planning in Denver, CO.)
The ICFE is dedicated to helping consumers of all ages to improve their spending
practices, increase savings and use credit more wisely.
The ICFE is an
award winning, nonprofit, consumer education organization that has helped
millions of people through its financial continuing education courses programs
and resources. In addition to eight Certification courses covering identity
theft, credit files, credit repair and credit scoring, among others, it also
publishes the Do-It-Yourself Credit File correction Guide, which is updated
annually. The ICFE has distributed over one million Credit/Debit Card Warning
Labels and Credit/Debit Card Sleeves world wide.
The ICFE is a partner
with the national Jump$tart Coalition for Financial Literacy and the California
Jump$tart chapter. The ICFE staff is also active with San Diego Saves and
Military Saves, both offshoots of America Saves.
The ICFE is also an
on-line help for consumers who spend too much. ICFE's spending help was featured
in PARADE Magazine in the Intelligence Report section. The money helps and tips
are from the ICFE's Money Instruction Book, our course in personal finance.
The ICFE helps consumers and students with mending spending, learning about
the proper use of credit, budget and expense guidelines, how to set up and
implement a spending-plan and also how to access financial education courses and
how to teach children about money. Other ICFE services include: Ask Mr. G
library, a free eNews service, and an online resource center for students,
parents and educators, plus financial education learning tools in the ICFE Book