Ryan's Blog

Thursday, October 06, 2005

Another thing about credit, and credit cards

Your credit report is used extensively in almost every area of your life. When you apply for a credit card, the credit card company reviews your credit report. Apply for an auto loan or mortgage and the lender checks your credit report. Apply for a good paying job and the employer will most likely check your credit profile. Do you recognize a pattern here?

The fact is that a spotless credit report is an absolute must in order to succeed in today's credit driven business climate. Even the simple process of renting an apartment is affected. Most landlords will consult your credit report before agreeing to rent their property to you!

Establishing a great credit profile

If you don't already have good credit, you'll need to establish a good credit rating as soon as possible. The fastest way to do this is to visit a major department store and apply for their in-house credit card. Use the credit card to purchase a couple of small items, say around $50 total.

When you receive the first statement, immediately pay 50% of the balance due. Do not pay the balance in full. When you receive the second credit card statement, immediately pay off the balance owed. The department store will report your responsible use of the credit account to the credit reporting agencies (credit bureaus). Do not use this credit card again!

Now repeat the above process at a different major department store. Again, use you new credit card to make a small purchase. This time, when the first bill arrives, pay off the total amount immediately. As before, do not use this credit card again. Once again, the department store will report your excellent payment habit to the credit bureaus.

Wait a couple of weeks to allow the credit bureaus to create and update your credit reports. This waiting period is crucial to the success of the next step:

Getting a major credit card

The single best thing to have reflected on your credit report is the responsible use of a major credit card. The major credit cards for our purposes are Visa, MasterCard, American Express, and Discover.

Apply for a Visa or MasterCard through a large bank. I recommend starting with Capital One for your first credit card application because they tend to be pretty liberal with their credit decisions (they gave me a card!). Contact Capital One and ask for a credit card application. Fill it out accurately and completely (be sure to include the account information for your two department store credit cards). Send it in and wait for a reply. Within a couple of weeks you should receive your new Visa or MasterCard in the mail.

When your new credit card arrives, use it to buy a few inexpensive items that you would have to purchase anyway. Gasoline, groceries, clothing, whatever you happen to need. Be careful not to charge too much though. You'll need to be able to pay off the balance within 2 months. Now, put the credit card away and don't use it again.

As before, pay 50% of the balance due right away upon receipt of the first statement. Pay the remaining amount due immediately when you get the next bill. The bank will report your timely payment record to the credit bureaus.

Allow two or three weeks for the credit bureaus to update your credit reports. You now have an exceptional credit rating that you can use to move forward with your financial life. Now, when the landlord, bank, or employer checks your credit report, the answer will most likely be YES!


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