Building Credit?

Question

My Girlfriend is trying to build her credit. She is timely with her payments on her credit card, cell phone, utilities, etc. meanwhile she has maintined 2 open lines of credit that havent been touched.

Basicly, I talked her into us buying a flat panel television and she applied for a major electronics store card and was accepted for $900. (I'm paying the difference in cash)

While doing my part of consumer homework I found that the store she applied to has rather higher prices than another with a better selection and a 18 month interest free period when you buy a television like the one we want.

My question is... Should she keep the card she applied for as an open line of credit and apply for one at the other store? or should she cancel the card she is getting before or after she applies at the other store.

The purchase has not been made yet.

Answer 1

There is a lot of misinformation about credit. This article will disprove many of the common credit card myths and provide some tips on increasing your credit score. There is no arguing that a better credit score means better interest rates for your mortgage, auto, and all other areas where credit is used. By implementing these tips you could save hundred of dollars in interest in the long run and put cash back in your pocket in the short term.

1) Avoid using cash and borrowing from family for all your purchases. In the eyes of creditors no credit history is the same as a bad credit history. You may get away with paying cash for your car but when you buy your first home it will come back to haunt you. Even if you can afford to borrow or pay cash try opening an account to buy your furniture, automobiles, or home improvements. A diverse credit background will help with your credit score.

2) Your credit report tells all. Do not lie or stretch the truth to lenders, banks, or employers. They will easily catch you and the consequences are not worth it.

3) Do not cancel credit card accounts to improve your credit. The intended affect may be the opposite of what you expect. You can hurt your credit by canceling your credit cards; especially if you have a long history with the account. Losing a ten or twenty year credit history isn't worth it. If you absolutely must stop using a card, try shredding it. An open account that doesn't have a balance looks far better then no credit account at all.

4) Starting early is always better when establishing credit history. Getting a teenager or college student a credit card is a great way to get their history started. For those who don't trust their child's judgment yet there are many prepaid cards that report to credit bureaus.

5) Past due debts that are over 30 days late will demolish your credit score. That aspect alone makes up a third of your credit score. To be safe never go passed the 30 days late period with any late payment. One payment made passed the 30 day mark will stay on your report for a very long time. When a creditor pulls your credit they won't care what the reason was so don't let this happen. Read more tips about building credit at: http://www.card-gallery.com/article/136,Seven_Must_Know_Credit_Tips

Answer 2

I have some information that can help with her situation. If she's paying any recurring monthly payments like cell phone, utilities, etc., she can have those payments reported through a consumer reporting agency (credit bureau) called PRBC. 3 years of historical payments as well as current payments after they're verified can be reported in a scored report that can be used in addtion to the traditional credit reports. This report alone gives a better picture of the 35% that makes up the credit report: payment history.

As far as the situation with the purchase, I strongly suggest that you don't do it. It would be benficial to you and her to wait. Reason being that does she really want to pay interest on something that will surely go down in price anyway? A neighbor of mine made that mistake. Instead of saving up for it and waiting for it to go on sale, they financed it, and paid an astronomical amount of interest which overinflated the cost of the T.V. Now after he's paid on it for about 9 months, I bought the same T.V. for almost a 1/3 of what he financed it for in the first place. Credit really should be used for large purchases like transportation and shelter, the necessities. A flat screen T.V.s and other luxuries should be saved for and paid off.

Answer 3

There are a few things to consider in this situation.

1.) It actually looks bad on your credit report if you open up a card and close it immediatly.

2.) Many lenders look at what's called your balance/limit ratio. Ideally you want to have no more than 20-25% of your available credit charged. If you have more than that it looks as if your over extending yourself. by having another card open, she has more available credit, and therefore her balance/limit is better.

3.) Average length of time an account is open is also a factor. It looks better to have accounts that are older, because it shows you are a realiable borrower.

4.) The ideal numbers of cards you want to have open is 3-5.

In closing, I would keep the account open, if for no other reason it looks bad on your credit report to open and close accounts. You might want to try finding another card to transfer the amount to, or returning the TV and freeing up the original card, but leave it open.

Answer 4

I was told when you apply for furniture it makes your credit score go up faster. I don't know where she got her t.v from, but she might want to keep that as a open line even if it is overpriced due to it helping her credit in the long run. If she can, try to pay if off in 12 months just so her credit will go up.

Answer 5

Building a good credit can be done in various ways. If you are fed up of the collectors tirelessly chasing you to pay your debts or if you are disappointed at your loan application being turned down, because of absence of credit history, you should learn how to do build your credit. The most important thing to remember is not to buy unnecessary items. Do not convert your ‘want’ into ‘need’, as it can drag you deeper in debt. If you are looking to build credit and do not have any history, set your priorities properly.