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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 usage.

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 performance.

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 performance.

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.

Here's a 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 promised.

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."


Ask Mr. G
Jim Garnett, The Debt Doctor
AskMrG Consulting, LLC
2216 SW 35th Street
Ankeny, IA 50023
515-577-1799
askmrg@yahoo.com
AskMrG.com

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Sent by:

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).  The ICFE is dedicated to helping consumers of all ages to improve their spending, 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 education programs and Resources. It 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 became an official partner with the Department of Defense/Financial Readiness Campaign in June of 2004.The ICFE was an active partner in the California Student Debt Resource Awareness Project (CASDRAP) which resulted in a new web site: (studentdebthelp.org).  CASDRAP disbanded in 2010, shortly after the web site project was completed.  In 2011 the ICFE assumed the single sponsorship of the (studentdebthelp.org) web site and is now responsible for its content and operation.

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.

Visit the ICFE's other web sites at: www.financial-education-icfe.org and studentdebthelp.org.  Both sites 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,  a free eNews, and an online resource center for students, parents and educators, plus financial education learning tools and a book store.

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