This is an informative post about how to build good credit without going into crazy debt. It’s sad that credit cards are necessary (thanks capitalism), since having no credit is almost the same as having bad credit.
How To Build Good Credit
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It’s not quite as dumb or stuffed up as some people there make out. Never going into any sort of debt demonstrates that you have no experience of managing debt. That means that the first time you actually need credit (like the vet bill example, or maybe your own medical bill or you need to get a mortgage) you are a high risk because you have demonstrably no experience of managing credit.
A double-whammy that happens sometimes is someone has parents, and/or siblings, who were bad at managing debt and so they avoid debt themselves having seen the negative effect in their family. The only metric credit reference agencies and banks to measure their credit worthiness is their familial links so they have demonstrated a lack of experience managing debt and the people who are likely to have influenced their ability to manage debt were very bad at it. My own credit rating took a hit when my father married for the third time because his new wife had a lot of problem debt which tanked his credit rating and had a knock on effect on mine. Fortunately mine was excellent so the hit was small, but it had taken years of demonstrating that I could manage my debt well to get it to that point.
Another advantage of a credit card is that in many places you get added consumer protections on things you buy on it. For example if I buy an electrical item on my debit card, by cheque or in cash which then fails within a reasonable time of the purchase (which could be several years for somethings) but where I bought it from has gone out of business or is no longer traceable, then I have no recourse at all. If I buy the same item on a credit card then the credit card company has equal liability with the seller so I can demand payment from them. I’ve not had to do it myself but a friend was in this situation and could not trace the seller (it was a shop that closed a few months later) so contacted his credit card company. They paid him then, because they had greater resources and specialist staff, managed to trace the seller and recouped the cost from there.
The only issue is that you have to CONTINUALLY have and pay on debt or you lose your credit score.
My daughter bought a car ($15k) and paid it off early.
She didn’t have any payments for about a year and then needed a replacement car. She was denied financing, by her own credit union who financed her first car, because she has no credit.
The positive scores reset to zero if not used within a year. Of course negative scores stay on your record for years.
It hasn’t happened yet to me, but I’ve been told (by people to whom it has happened) that if you pay off the full balance of your credit card every month (i.e., never paying interest), the CC company will eventually cancel your card and drop you as a “customer”.
No legit credit card company would drop you, they may not be making money on you now but they gamble in futures, why limit the base of potential users because they are TOO responsible? I say that having plenty of cards I dont really use but since they’re part of my credit to debt ratio they’re beneficial to “have on hand.” The average American is generally always one $500 disaster away from an avalanche of debt (by design of course) but if you know the game, what the rules are and how to play then you’re never actually in financial danger and better yet you oen new avenues of resources by having improved credit. People think by only paying cash they’re outsmarting the system, they’ve accounted for these people and they only hurt themselves. Unable to buy things, maybe get a job (they check your credit), rent a place, buy tickets to things, I’ve been to places that only accept electronic payments… it is what it is… and sure you can buy used but personally I like having new stuff now and then. If youre unwilling to participate in society, some people should just go off grid and live in the woods. They’d be better served until society develops in the area. I know people that live like that, it aint for me but I also work with what is, not with what I think it should be but isn’t.
They still get their retailer fees every time you make a purchase so they’re going to keep you. It’s not as profitable to them but it’s still a little profitable and that adds up over millions of users.
If you never charge anything, though, then they might cancel you, but it would take a while.
Get the credit card from the bank you already use. Set up your regular bills to get automatically charged to your credit card – phone, electric, whatever you were GOING TO PAY ANYWAY (and whatever allows using a credit card, some now insist on direct bank withdrawals which I would NOT do). Then set up your credit card to transfer the money from your bank account automatically once a month (all within the same bank, so THAT I trust). Build a credit record, have less separate bills to pay and mail.
Another fun trick:
When you buy a car, used or whatnot, have them split the payment up and make sure you pay interest on it for a couple of years at least, then pay it off the rest of the way.
Yeah, pay interest. Think of it this way: you aren’t paying for interest, you’re paying for better credit.