Credit builders: start here

Dear readers,

In January 2012, half a year after college graduation, I started my credit journey. Clueless and confused, I was fortunate to have guidance from helpful people to set up my first credit card, manage the card, and successfully apply for future cards. My credit history is now pretty solid, with the only weakness being the length of history which inevitably has to be developed over time. I would like to share my fortune of knowledge with you. If you came to this section of my blog, you likely are in the same boat as I was a year and a half ago. My blog posts on credit cards and credit history were developed on the assumption that the reader does not have much prior knowledge of the credit industry, and I try to present the information in a clear manner.

Like anyone who is new to credit, you may be wondering what a credit card is, and what sets it apart from a debit card. “Credit card. What is it?”  will clarify these. Now that you know what a credit card, why should you get one? Personal Finance 101: Introduction to credit cards gives you some of the most essential reasons everyone should have a credit card, including to build credit.

If you are now convinced that you need a credit card, you may want to read on How to apply for a credit card. As someone without much of a credit history, your options may be limited, but there are still a lot of ways to go about getting your first card. “Options for your first credit card” series gives you 4 options. My first card was a Bank of America Cash Rewards secured credit card. After one year, my card graduated  into a Bank of America Cash Reward credit card. I called Bank of America to waive the annual fee, then again to request a credit limit increase,  and then again to lower the APR. As of today (7/21/2013), this is the card with the highest credit limit and lowest APR in my credit card portfolio. Should you be interested in this card, also check out my insider’s view of Bank of America’s credit cards.

Once you get your first credit card, how should you use it to build a good credit history? Most importantly, always pay your credit card bills on time and never go beyond the credit limit.

Credit cards offer a slew of benefits that I have summarized in a 10-post series: 10 reasons you should use your credit card.

While there are many benefits of having a credit card, after all, the prime reason to get one is to build or strengthen a credit history. To understand what credit history implies, check out “Overview of credit history and credit report”. Your future creditors will look at your credit report to determine the quality of your credit history. What’s on a credit report? And what does your credit report tell creditors about your creditworthiness? To keep track of your credit history, you may want to order a credit report once in a while. The government entitles you to a free credit report from each Consumer Reporting Agency every calendar year. This is how to order one.

A credit score is a summary of all items on your credit report. To understand how credit scoring works and why you have many different credit scores, check out Personal Finance 201: Introduction to credit scores. For a quick reference to components of a credit score, please visit the must-known pie chart for credit scores. Now you should have some idea of how to maintain a high credit score. 

I am a strong advocate of always paying credit card bills in full to avoid paying interest. However, if you decide to carry a balance from time to time, you may want to know how credit card interest charges are calculated.

If you have good discipline and have built good financial habits with your first credit card, you may want to consider applying for your next credit cards, because there are times when having more cards is better for credit history. But be contented with your first and only credit card if you tend to overspend. Again, you should have more credit cards only if you are able to control your spending.

I will update this page as more blog posts on the topic of credit come. If you have any questions about credit, please feel free to leave a comment, and I will reply as soon as I can. Good luck with your credit journey, and stay tuned!

Best,
Richard