My first financed car was a 1995 Honda Accord. It was a used car and I bought it at CarMax back in 2000. At that time I was still in college and I had no credit score. As far as Transunion, Equifax and Experian were concerned, I didn’t exist in their databases. When you have no credit history no lender wants to extend you any loans or if they do it’s crazy expensive. As I recall subprime lender Transamerica financed my purchase at 18.99%. Sticker price was about $10,000 I had to put a pretty significant down payment of $2,500 even to qualify for a loan. For a $7,500 that I borrowed I had to pay $4,100 in interest. This was the first and the last time in my life I had to pay double digit interest rate on the money I borrowed. Building ones credit history is important and it takes time and preparation.
Credit Score Ranges
- Bad Credit is in the 300-629 range. This is as bad as having no credit history. With scores in this range you will have difficult to qualify for credit, leaving you with few good options when you need to borrow money.
- Fair Credit is in the 630-689 range. You will have more options, but you’ll likely pay a higher interest like I did when buying my Accord. You might be able to qualify for a credit card, most likely cash secured.
- Good Credit is in the 690-719 range. You can get a mortgage or a car loan at a competitive rate with such score.
- Excellent Credit starts at 720 and up. With score like that or higher you will get the best rates available at the time.
Apply For a Cash Secured Credit Card
Start small by applying for a cash secured credit card of $300 or $500. You should also do it early on when you are 17 or 18. Capital One advertises as one of the companies that will give you such card. Keep in mind when applying you have to have an income source. Cash collateral won’t be enough since you need to show the bank that you have the ability to pay them back. Part time job may suffice as long as it’s not a gig type of a job since the credit card company will ask for the most recent paystub. When you obtain your first credit card make sure to make those payments on time and don’t max out your card’s limit.
Pay Your Cell Phone and Utility Bills On Time
Paying your bills on time won’t build your credit history, but will prevent it from having a bad credit. Late utility bill payments will be reported to credit bureaus and it will have a negative effect on your credit. Make your payments on time and make sure you pay any rent that you still owe. Late cell phone bill payments will also have a negative effect on your credit history. Having bad credit is even worse than having no credit.
Making Payments on Time Is The Key
You have to make your financial obligations’ payments on time. It’s very important when building your credit history. The bank doesn’t care if your car broke down or you’re between the jobs. All that lender wants is to receive those loan payments on time. Even one 30 day missed payment will ruin years of your hard work.
Keep An Eye On Your Credit Score
Most banks these days such as Bank of America, Wells Fargo or Chase offer free credit sore monitoring for it’s checking account customers. If your bank offers this service then sign up and you’ll get monthly notifications about your score. Every U.S. resident is entitled to one free Annual Credit Report from all three credit reporting agencies. There are many other credit monitoring services such as Credit Karma or Identity Force.
