Establish good credit one step at a time. To avoid debt, do not apply for credit cards or a bank loan until you know you can handle the basics of saving by following a budget and paying bills on time.
Open A Bank Account
Even though your credit history does not reflect account activity, credit applications often request bank account numbers. Maintaining active checking and savings accounts with no checks returned for insufficient funds will show you manage money responsibly and are disciplined enough to save.
| To Choose A Bank: |
- Identify several banks with strong reputations.
- Gather information about them.
- Compare their services and fees.
- Look for conveniences such as ATM, debit and electronic banking services.
- Choose the bank that best suits your needs.
Do not choose a bank just because it offers gifts, vouchers or cash rewards for new accounts.
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Use A Debit Card
After you have proven your ability to manage checking and savings accounts responsibly, add a debit card. While it does not establish credit, using a debit card can help you practice responsible spending without risking debt:
- Each transaction subtracts money directly from your checking account.
- You cannot buy something if your available balance is less than the purchase amount.
- There are no interest or late-payment charges, but other fees may apply.
Younger Than 18?
To get a head start on establishing good credit, open a joint savings and checking account with a parent or guardian before you turn 18. This will help you begin building your credit reputation.
Make sure you use these responsibly because your actions will also be reflected on your parent’s credit report.
For More Information
The USAA Educational Foundation publication Get
MoneyWise provides more information.
Consider A Secured Card
If you do not qualify for a credit card, consider a secured card backed by your savings account. The credit limit is usually low, and interest is calculated just as it would be for a regular credit card. Ask about associated fees and avoid cards that charge processing or application fees. Use it carefully, keeping the balance low. Make payments promptly to establish your creditworthiness.
Get A Credit Card
When you are ready, apply for a major credit card. Before you apply:
- Shop for a card with no annual fee and low interest rates.
- Use caution with cards that offer low introductory rates. After a few months, the rate goes up — often higher than cards with no introductory rate.
- Take time to understand the card’s terms, conditions and fees, making sure you can meet the requirements.
- Do not apply for more than one credit card at a time. Each request appears on your credit report and lowers your chances of being approved.
If you do not qualify for a bank credit card, apply for a department store charge card, which is easier to obtain. Use it in moderation until you have established a good payment record. Then apply for a bank credit card and formally close the department store card account with the merchant.
When you receive a major credit card, keep the balance low, and pay your balance in full each month to keep improving your credit reputation. If you are unable to pay your entire balance at once, stop using your card until it is paid in full.
See the “Using Credit Wisely” section of this article for more information on responsible credit use.
Self Test #1
- Credit is free money for your use. T or F
- Debit card use helps establish credit. T or F
- You do not have to pay interest with a secured credit card. T or F
- You should not apply for more than one credit card at a time. T or F
Answers
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Basic Money Management
Basic Money Management
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