How to Start Building Good Credit
Having a bad credit history is a problem, but so is having no credit history. If you are starting out in the workforce or living on your own, building good credit takes planning and effort.
It used to be pretty easy. You could be an authorized user on your parent's credit card account and piggy-back on their card payment history - their responsible behavior in paying down the debt became your good behavior.
That doesn't work anymore. You need to be the main cardholder or borrower, or be a co-signer on the loan, (using a credit card is taking out a loan). Generally speaking, getting a store charge card is easier than getting a major credit card and the limits are pretty low.
Make a small purchase with the store card (something you need). Paying the card balance back in full over one or two months will start a good payment history on your credit report. It's very important to pay on time, which means getting the payment in the mail or making the scheduled online bill payment several days before the due date. If you make a few purchases over a six month period and pay the balances off promptly, you will undoubtedly start getting major credit card offers in the mail.
College campuses used to be a happy hunting ground for banks where they could easily entice students into becoming credit card customers with low promotional interest rates and a free pizza. A combination of tighter rules through the CARD Act and the effects of the recession has cut down, but not eliminated this practice. If you are offered a credit card with a 0% interest rate, read the fine print.
It's not free money.
These credit card deals usually last for six months, then if there's a balance the default interest rate pops up to 20% or higher. If you open an account with one of the card companies, make sure you review your budget and have a plan to make the credit card work for you. Use it regularly to pay for one or two necessities, like gasoline or groceries, and pay off the balance each month.
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