One technique I have heard is to open a CD and take out a secured loan against it. You should only lose a fractional amount of money but it should boost your score.
Although I never understood American's obsession with their credit scores. Unless you're taking out a mortgage tomorrow I don't really see why it matters. Credit scores are a natural part of normal consumer activity, no need to game them.
Because it does? Apartments often do credit checks. Utilities run checks on you and require down payments for bills if your credit is too low. If you want a "nicer" credit card (Amex, for example), you have to have good credit. Starting a business and want a small business loan? They check your credit history if your business doesn't have a history. Etc..
Credit, at least in America, does matter. Can you get by without it? Of course. But having good credit is pretty easy to do and can have nice benefits.
It's totally possible to live without debt, but it seems curiously inconvenient to live without a good credit score.
I've never heard of this. Even if its possible, You will most likely pay a huge premium, if you want a lender to not use FICO scores to determine how risky of a client they're about to lend money to.
Get a credit card that you actively use but pay off every month (rolling over debt will not hurt your credit score as long as payments are on time, but as a personal bit of advice, pay it off every month as to avoid a ridiculously slippery slope).
Once your score is somewhere in the 650+ range, and if you're considering a car, financing some of it isn't the worst way to build credit.
Lastly... time. Unfortunately, it just takes a long time to build an excellent credit rating. One ding you'll likely see on every report you pull will be something saying you haven't had credit very long. After about the five year mark, this starts to disappear.
Once again... caps for emphasis - PAY EVERYTHING ON TIME. A year of great payment history can be erased by a few late/missing payments. Keep good track of when bills are due and set up auto-payment if possible to ensure payment. But also watch those accounts like a hawk as even auto-pay is not a guarantee.
Counterpoint. I have ~13 years of solid/good credit history, and walked away from a severely underwater townhouse ($~100K underwater) 3 years ago. I have over three years of missed payments on that mortgage (+36 "dings"). Credit score dropped from 750s to 690, no credit lines closed by other institutions, and I'm still able to easily get financing.
Credit scores are highly overrated.
Pro Tip: Being an authorized user on someone else's card who makes all of their payments on time will positively affect your credit history.
This was originally not going to be the case, but was changed at the last minute when the Federal Reserve mentioned Regulation B to Fair Issac:
http://www.bankrate.com/finance/credit-debt/fico-08-will-sco...
Credit items last either 7 or 10 years at most (I forget which). So, from the point of view of the credit bureaus, you have 7 years of solid credit history.
That probably weighs heavily in many credit scores, and if you've only missed mortgage payments but haven't missed payments on revolving credit, that may be strong enough on some credit scores to outweigh the mortgage.
Note that I said 'some credit scores' - there isn't a single credit score, even for any given institution. They all have several, and when a prospective lender pulls your credit score, you don't know which one they're going to use. They use them as secret formulae to figure out whether or not you present a risk to the specific lender, which is why a single agency can have as many as 40 different scores for the same person, depending on which the lender requests.
None of this ever appeared on any credit report. I don't think I actually believed it would improve my credit score, but when the rental company came and threatened to evict every tenant for the third time (presumably because it was a dilapidated, drafty old flophouse and nobody wanted to sign a lease renewal), everyone took the opportunity to move out and I was stuck with the entire bill for half a house, for the extra two months I needed. (I managed to split it with someone and get the hell out.)
In the cold winter months, gas heat cost more than the rent for the entire half of a house. In the summer, I could get away with paying sometimes $50 or even sometimes $0 for a month, due to past estimated bills that were over actual usage. That was nice, but it really sucks getting stuck with all the bills when everybody splits because someone convinced you it would be a good idea to put your name on as many things as possible.
I can't think of a whole lot of things that are worth taking on significant debt for a new college graduate. Certainly not real-estate unless it's actually your business because it reduces flexibility to relocate for a job. Maybe reliable transportation, but that's a problem that can also be largely solved by relocation.
Revolving type credit to purchase gas and groceries makes sense. It also makes sense to purchase supplies for one's business. Beyond that, it's just consumer debt.
Putting money into a CD as collateral for a secured loan is probably worse than a slightly lower credit score due to the illiquidity of CD's.
Through high school and college I had a credit card that started out with a $150 limit and grew to around $800 or so. I used it for books and other small stuff. By the time I bought my first home at 21 my credit score was in the mid-high 700's. By the time I was in my mid-20's it was around 800.
I'd have had a harder time and higher rates if I hadn't established my credit early.
There are a lot of things for which a credit history is helpful or downright necessary. I would never recommend signing a mobile phone contract, but most of them do credit checks when you do 2-year contracts. Utility companies also do credit checks to determine whether you need to pay a deposit.
It depends on where you are and how competitive the rental market is, but in NYC, it strongly helps to have a credit history in order to sign a lease.
Landlords (at least for the apartments you'd want to live in) generally are reluctant to sign leases for new college graduates unless they have a guarantor on the lease (many require that the guarantor make 80x the monthly rent in income and live in the tri-state area).
Having a solid credit history not only makes them more likely to waive these requirements, but also more willing to accept an offer for lower rent (because they're more confident that you will pay rent on time and not cause damages, the two things that they care about the most).
None of this is worth "taking on significant debt", but fortunately, you don't have to take on any debt at all in order to build a credit history.
http://www.daveramsey.com/article/the-truth-about-your-credi... http://www.daveramsey.com/new/baby-steps/
I've also noticed that without Dave, those that strictly adhere to his program have an incredibly difficult time making money and budget decisions on their own.
A credit score can save you money in the long run. Very few people can pay cash for a vehicle or a home. Better credit scores allow you to reduce these payments and interest in small fashions.
Also, while a credit score is a measure of how well you handle debt, why not get a good one? Charge gas, groceries and regular incidentals, pay it off every month. Get a card with cash-back, and earn free money for spending you would already be doing.
Credit isn't a devil out to destroy your life. Like anything else, it's a tool to be used appropriately.
People like to trash on Dave because he's religious(and very vocal about it) but I view it like AA/NA/etc(i.e. whether or not you believe the religious part seems to be unrelated to the positive effects of "working the program").
I think he's great.
I also had some American Express charge cards, they don't have a huge affect on your credit but they may help you get an American Express credit card if you have a thin file.
Once you got some credit, you can go for a car loan. I opted for a lease (since they tend to be cheaper then a new car). My current credit score tends to hover around a 720 FICO and I'm a rising junior, will probably go up a decent amount when I remember to pay my discover card in full before the statement date.
Also, check out http://www.reddit.com/r/personalfinance.
1) Installment Debt - i.e. a car loan
2) Mortgage Debt - mortgage loan
3) Revolving debt - credit cards, with balance under 50% of CC limit
and of course...no late payments on any of them.
As others have said, on-time payments and length of history are mostly key. As you build credit, get another card or two with higher credit limits. Call your cards' customer support lines every year or so and ask for a higher limit. Having a high limit (assuming you will not abuse it and rack up debt you can't pay) is good in itself, but mostly I'm suggesting this since the fraction of your credit that you actively use factors into your credit score, and a low fraction is better.
As someone else mentioned, diverse sources of credit are good for your history too. Assuming you're not looking to buy a house soon, an auto loan is probably the only other type you'd get. Even if you can buy a car in cash, think about financing through your credit union. If you can get a loan with a lower APR than what you might conservatively get with that cash sitting in an investment account (4-5%), you'll at least break even financially and the credit history may be worth it when you're looking at mortgages.
Outside of a house the only reason to carry debt is to hedge your risks on large purchase items you already have the money for (IE you have the money to buy a car, but paying for it up all front may be enough of a risk to utilize credit if it would eat up most of your savings).
The biggest factor that seems to have an effect on my credit score is account age, so I would advise against trying to do anything crazy and short term. Having a single credit card for 8 years will go farther than any crazy loan shenanigans will in 3 IMO.
Paying all your utility bills and such on time goes without saying.
I bought a CD for $1000, and secured a credit card with that through the same bank. It worked out better than a 'secured' credit card because I made some interest.
CD Rates are different now, but it still works out better than secured.
I had to do it secured because I had a $78 water bill that a roommate forgot to pay on my credit from 3 years earlier.
Which reminds me of something else, try to get past paid off debts removed if that is hurting you. Sometimes they will do it, depending on your story.
Use your card for your normal purchases, don't just buy big things for the sake of purchasing things. Pay off your bill ON TIME every time.
What I like to do is pay off most of the bill before it is due, and keep 5-10% of the bill for when they report it. This keeps your utilization at that low % which keeps your score up.
Another thing to do if you can get multiple cards is set up an recurring purchase on one of them like netflix and make it so it auto pays the bill monthly. This way you are keeping it active while not really spending anything.
Then in six months to a year, apply for other credit cards, perhaps with same bank, perhaps with others.
