The Credit Story

How important is credit? How do you I get started? These are very common questions. Why? Let's face facts. Without "credit" you can't get a credit card and without a credit card you can't even do something very basic, such as rent a movie from one of the nationwide chains like Blockbuster.

How good your credit rating is determines everything from the loan rate on your new or used car, to how much you pay for insurance. In some cases your credit rating will influence whether you get that new job or not. Sad but true, in today's world your credit rating holds you hostage as you do every day shopping and finance.

Getting Started:
This part varies from person to person. So some of the information is a bit general.

In order to get credit the "lender" must feel like they have a very good chance of getting paid. That means "brower" must have a source income. For students this may mean Mom & Dad.

On the other hand the source of income will simply mean a job and a bank account to put your money in. The most basic type of credit reference is the bank issuing the account holder a "debit card." With absolutely no prior credit history the bank may wait up to six months to issue the "debit card." During that period an "insufficient funds (bounced) check can delay getting the "debit card" for an additional period of time. Note: Some banks issue the debit card based on the amount deposited or maintained in a new account. Comparison shopping for your bank and credit services is a great first step in taking charge of your finances.

The bank "debit card" isn't a credit card even though it may carry a logo from either VISA or MasterCard. In many stores it will be accepted and function like a credit card. The major difference is the money spent is coming directly out of the holder’s bank account, usually within 24 hours. Note: Treating a credit card like a debit card is also good practice. What you charge is best paid for from the statement that the charge appears on.

Getting Your First Credit Card:
When you applied for your bank account you may have also started your "credit report." The amount in your account, your job may be reported to one of the "Big Three Credit Report Companies." Writing checks that aren't covered are reported and adversely affect your credit score and ability to open future bank accounts.

After six months on the job and with your bank is about the right time to apply for your first credit card. The best place to start is not with a bank-based credit card. Rather start with an application (mailed or online) for a gas company credit card, a smaller local department or jewelry store. In order to build credit you must use credit. The first pitfall comes from using TOO much credit TOO soon and not paying on time.

Budget First & Stick To It!
Just starting out the only way to control credit spending is with a stick budget. A budget doesn't have to be formal or even written down. JUST FOLLOWED! Money comes in to your bank account and flows out to buy items and pay bills. In order to use credit wisely it should not be used to extend basic buying power. Buying power is tied directly to income. The only way to really increase buying power is to increase income! Using a credit card for items you can't afford to pay for actually decreases buy power because you increase the cost of buying goods. How? You must add the interest you pay on the credit balance to the cost of the item. Just paying minimum payments will mean that the special sale item will increase in cost by 300%!

Gas company credit cards come in two types. One that allows extended payments and the type that makes you pay in full each month. Either way they should be paid in full each month. There is an old saying that expenses rise to meet income. Using a credit card to imitate income soon means you can't pay your bills.

The trap of credit spending usually comes from lack of understanding. In today's market fuel costs are substantial. If you commute to work it can add up rapidly.

Follow this example:
A person has a heavy traffic, one hour commute to work. Two hours on the road each day. If they drive a fuel hungry vehicle they may only get 10 miles to the gallon in traffic. Each day they may burn six gallons of fuel. In the U.S. that can mean $12.00 to $15.00 dollars a day ($240 Plus a month) in real cost. Using a gas company credit card will shift the amount to following month. If the "extra" $240 cash is spent on something else each month the money to pay the "gas credit card" simply isn't there. This will bring on the first "credit crisis."

Using the card feels like it frees up money. It doesn't and only following a budget will keep that "extra" spending in check. Only money left over after being allotted to all expenses, real now or real in the future is discretionary money. While making that budget don't forget to put 10% in savings for that coming "rainy day"!

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