Post by Julie, RN CCRN Staff Writer
No Credit History?
Think about it. You are just out of school, excited about your new job in a new city. But first you need a place to live. You find a perfect apartment, close to work. You look forward to getting it fixed up, and get rid of all your college hand-me-down furniture.
New Grad! photo by CarbonNYC
The apartment manager calls you: “Sorry, we can’t rent to you!” “Why not?” you cry-I love that place and I can afford it!” “Well, maybe so, but you don’t have a credit score when we pulled your sheet, corporate won’t let us rent to anyone without a decent score.” Well no score isn’t a bad score, but that may not matter….
How does someone with no credit history establish credit in this economy-where banks and credit card companies are not willing to extend credit?
Young adults are at a definite disadvantage-why? No work history. While credit cards are the cause of demise for many households, when used correctly are vital to a healthy credit report. And your ability to finance automobiles, obtain a home mortgage, rent an apartment, and function in a credit-oriented society require credit.
Most young people are faced with this dilemma. You may be going away to school and leaving Mom and Dad’s wallet, or just graduating from nursing school and entering the world of financial independence.
You need the security of having money available for those unexpected events that are sure to happen. But how do you establish credit when you don’t have a work history? Banks and credit card companies aren’t giving away credit like they were before the economy crashed and burned.
Five Tips on Establishing Credit:
1. Obtain a small loan from a local bank. Items such as appliances, automobiles (used!), home repair, etc can be financed locally.. .. Your local banks frequently will extend small loans when larger banks won’t.
Why?
It’s the advantage of doing business with someone you know! But you must make sure that your loan is reported to the 3 credit reporting agencies Equifax, Experian, and TransUnion.
It’s been my experience that many times small community banks do not report their loans to the credit agencies, no report, no credit score! So, request that your loan be reported. When our daughter was attempting to establish credit after graduating from college, we advised her to take out a loan from our local community bank to purchase appliances. We were unaware that this bank didn’t report their loans to the credit agencies. So the loan from this bank did nothing for her in attempting to establish credit.
2. ALWAYS pay your note on time!! I can not emphasize this enough! Never borrow more than you can afford to pay back each month and make sure you pay ON TIME! This is the most crucial aspect in establishing good credit. Late payments remain on your credit report for years!
3. Try to obtain a credit card with a low available credit limit, say $500. That doesn’t mean that you should charge $500 on that card! Gas cards are an excellent place to start with low credit limits. Some credit card companies are willing to open accounts with low limits initially and will increase your available credit depending on your payment history. Establish a history of always paying on time and your available credit will increase. Don’t charge more than you can pay off every month! Do I need to repeat that?? Charge a tank of gas and then pay your balance in full when you receive your bill. Don’t get into the habit of paying only the minimum balance!
4. Make sure you have a good work history! Your length of years at your place of employment speaks volumes! Banks and credit card companies feel that if you have a stable work history then you tend to be more responsible.
5. Consider a pre-paid credit card-This means a card that has your cash on deposit, that your charges are withdrawn.
Establishing Credit, Is Not Running up Debt!
Establishing good credit isn’t the same as running up debt. It’s about being responsible in obtaining only what you can afford to pay back each month. But make sure you use your card on occasion no matter how small the purchase.
Inactive credit cards have a negative effect on your credit report. If it’s a bank loan, make sure you make your payments ON TIME every month! If you go to a bank or credit card company trying to convince them why you deserve a mortgage, car loan, or high credit line without having established a good credit history, you are going to be given the same look that a doc gives a GN when you make patient treatment suggestions! (sorry Dr Dean….)
If you follow these simple guidelines, you can quickly establish a positive credit history that will benefit you greatly down the road. The better your credit, the lower interest you pay, and that, my friends makes good cents….
Note from Dr Dean:
Julie is a new staff writer for The Millionaire Nurse Blog. Check out her bio here!
She will post frequently here on money issues and nursing! Please make her feel welcome!
Reader Questions:
Did you have any trouble getting credit when you first finished school? Did you abuse the privilege?
What tips do you have for young people wanting to start out on a good financial footing?
Tags: establishing credit, getting your first credit card, new grad with no credit, no credit history
[...] This post was mentioned on Twitter by Dr. Dean Burke and Dr. Dean Burke, Dr. Dean Burke. Dr. Dean Burke said: New Blog Post: Five Tips To Establish Credit! http://bit.ly/a9fEN7 [...]
Welcome to the blog….. I have given up credit and am worried that if I ever move to USA I will have to take to getting credit again just to build a score to rent an apartment!!! Crazyness!!!! Great article.
Forest, while we would all be better off operating on a cash-only basis, sadly the US relies heavily on credit-worthiness. We are actually penalized with being given a lower credit score for having no credit history. Yes, it is crazy! Thank you!
Welcome, Julie!
I remember getting my first credit card in college for a local department store. Unfortunately, it was so I could buy things I didn’t have money for versus establishing credit. Oh, well it’s better to learn later than never, right?
Right, Kay! We’ve all been guilty of swiping plastic when we didn’t have cash available. It takes a lot of self-discipline especially when it’s something we really want, especially when your young and inexperienced! It’s so easy to run that limit up beyond what we can pay off, and before you know it we’ve completely ruined our credit before we ever get started. Unfortunately, we usually end up having to learn the hard way. But a lesson learned later is definitely better than not at all : )
I remember when I wanted to buy a car, I wasn’t able to get a used one because I had no credit history! The banks were willing to lend me $13,000 for a new car, rather than a few thousand for a used one.
Their logic was that the new car was much better collateral than the used version.
It’s very difficult to operate in this country without credit, but if you refuse to borrow and live within your means, then it becomes much easier.
you made a great point! If we would save to pay cash for what we could afford rather than being concerned with our social image, we wouldn’t need credit.
It just seems backward when trying to rent an apartment or buy a house and you’re turned down for having no credit history because you’ve been responsible by always paying cash. But that’s how our system operates today.
Hi Mom! I’m so proud to see your name up there! I knew you could do this! You, Grandaddy, and Daddy taught me everything I know about money! I don’t know if you were talking about me or Crystal up there, but I remember borrowing a small amount from the bank to establish credit when I was younger and you are right, they do not report to credit agencies!! It took credit cards to establish credit. Then, just as you said, being young and stupid got me in over my head and soon I had run up quite a balance!! It took hard work and discipline, but I learned my lesson and I love being debt free!! Thanks for all the help and advice you have given me over the years!
I’m so proud to know you were paying attention! : ) You are an excellent money-manager…a real penny pincher!
Keep clipping those coupons!
Welcome Julie!
Having another voice on this great blog will be cool. I’ve really enjoyed Dean’s writing so far and it’s very interesting to get a look into the financial workings and mind of someone in a somewhat cloudy profession as the medical field is.
I’m looking forward to your future thoughts!
Thanks Jesse!
Cloudy it is! There are many unknowns in our future especially not knowing the impact the Obama healthcare bill will have.
We just need to educate ourselves, live within our means, and invest wisely.
Welcome Julie!
Great post, and great ideas.
I didn’t have any issues because I had to take out personal loans to help pay for my schooling (my parents co-signed). So I had a good history of payments by the time I was 21.
However, most people don’t have to take out personal loans so young, and you are right, it is hard to get that first apartment when you are an unknown commodity to the credit world.
All the ways you suggested are low risk if managed properly, and it is a great early lesson in personal finance and managing debt!
Looking forward to your future posts!
[...] out her first post here which will help you young student nurses begin to establish [...]
The one I’d add is to hold on to some of your first credit cards as long as possible. I still hold on to my college credit card not because it has huge benefits, but because it’s great to have a long credit history with the same card, especially if you’ve done a good job paying it off. As long as there’s no annual fee, there’s no reason to close it. You don’t even have to use it, just keep it open so you can continue to build that credit. I almost canceled mine until I discovered there are major advantages to keeping it open.
[...] Five Tips To Establish Credit! @ Millionaire Nurse [...]
[...] from the Millionaire nurse blog had a really timely post on how to establish credit if you have no credit history. I say that this was timely because I have a coworker that needs to establish credit. He has [...]
Hi Julie, congrats on being the new staff writer! I think you’ll have a lot of fun, and learn a lot at the same time!
Cheers