I am looking to make a move on some properties buy the new year…but right now i have no credit and a limited amount of cash(should be higher by the new year though) my queation is what is the best and fastest way to build credit for the purpose of obtaining loans?
There is no “fast” way to do it. Credit scores are built up over time. Lender’s are going to look at the history of open accounts.
The first thing is that you need to get some credit so that you can build your credit.
Apply for a gas card or respond to one of the credit card flyers that you receive in the mail.
DO NOT REPLY to all of them. Every time that your credit is pulled, it decreases your credit score. So be selective.
Once you have established credit. Make sure that you pay on time.
If you start now you will have about 6 months of history built up by the time you start looking.
I applied 4 one last friday…with my bank so the lady was like I should have something in the mail by the end of this week…so we will see
If you have credit cards, you need to be aware of your debt-to-credit ratio. This is the amount you owe as a ratio of what you CAN borrow. For example, if you have 3 credit cards each with a $1000.00 limit, then you have $3000 of credit. If you owe $500 on card 1 and $1000 on card 2 and $550 on card 3 then you currently owe a total of $2050.
To get your the ratio you divide the total balance by the total credit. This comes to 2050/3000 = 68.33% The lower this ratio the better your score tends to be. I have heard all kinds of numbers of where this should be. In reality, if this is credit card debt only, it should be at 0-1%. However, that is another discussion and reason.
If you have a high ratio there are a couple of things you can do. The first and most important is to pay down that credit card debt! You are wasting good money on finance charges. You said you were limited on cash, so I presume that if you do have CC debt that paying it down may not be enough to get you a low ratio. Just depends on you individual situation.
The second option (which should NOT replace, but enhance the first option) is to get some more credit. I know, it sounds crazy. IF YOU CANNOT CONTROL YOUR SPENDING THEN DO NOT DO THIS! By applying for more credit, you will lower your ratio. Let’s say you apply for a new CC and you get one with a $2500 credit limit at a low interest rate. You transfer the balances from the highest existing CC to reduce your finance charges. This helps you to spend more money on paying them off and less on supporting the bank’s shareholders.
With the new CC, your total credit has risen from $3000 to $5500. Now without paying anything down, you have changed your original ratio of 68%+ to $2050/$5500 = 37.37%. This will cause your credit score to go up. As you pay down the debt, your score will go up.
I am sure others on this forum will have some better input and will correct me if I am wrong (Psst! Please correct me if I am wrong!) They will also have many other ways that can raise your scores. The most important in my opinion though is that you have a long credit history and that it is a good credit history. Don’t be late and keep your accounts for a LONG time. Never close a credit card, just don’t use it (Except from time to time to keep the history active).
I have no credit at all…never had bad credit…just no credit which is almost just as bad as having bad credit…I just graduated from college
good explanation, carlittle
I am sure others on this forum will have some better input and will correct me if I am wrong (Psst! Please correct me if I am wrong!)
I am with you when it comes to posting. I do not profess to know it all. I am just a sum total of all the information that I have gathered over the years.
I missed that part of the post. Reread and then saw it. You are correct. I remember being in college and being told by a gas card company that I “didn’t have the right kind of credit.” However, my wife that had no job and no income did qualify. Go figure.
If you have no credit there are a couple of things you can do. The first is to apply for some! You have done that as you have said. That is good. However, you will need to get some credit HISTORY before that score will go up to the highest points. Use the credit wisely now or regret it in the future. Banks prefer a 24+ month credit history when getting high value loans.
If you have access to a credit union, you may want to consider joining. This may give you access to lower cost loans for auto’s etc. If you can, own your car, but financing can be a great way to build your credit.
The other way you can help to quickly establish your credit is to have someone that already has great credit help you. This would be someone like a parent. Have you parent add you to a credit card of theirs as an authorized user. By doing this you will inherit their credit history for that account. This will only work if the parent has a GREAT score. If they have a low score, you will too. This method can be a great way to get your 18 yr old to buy their own car with no cosign. Out them on at 16, DON’T Tell them. Then when 18, they have 2 years of credit history and a great score. They can get a great rate on a loan and you won’t have to cosign.