Building credit through gaming!
aspieRommel
Icrontic politicoIndianapolis, IN Icrontian
Hey guys!
So, the other night, I was thinking about ways to build credit. I have no credit (I'm a ghost!) and my mother and I have talked about doing something to build credit for me in the past, but we never went anywhere with it.
I turned my thoughts to gaming and immediately got an idea: use the games I purchase to build my credit!
Here's what I'm talking about: I do a lot of gaming (obviously) and like to buy games that I like, in which they are usually around $65. My thinking is getting a $500 credit card and use it (maybe once every two weeks) to buy a new game, and then pay it off, hopefully building my credit.
So here's where I ask for advice for what I want to get. I am not sure what I should be aiming for so my questions are:
Which line of credit should I go for?
What is an optimal interest rate for someone like me?*
Should I go automatic billing or pay it manually?
What billing cycle should I go for (if it gets to that) ?
So I hope you guys can help me in this point in life as I will try to "get on the credit map".
Thanks guys!
*: I work 20 hrs/wk at $8.00/hr.
Comments
You're going to be limited in what line of credit is offered to you, to be honest. A quick search on google for student credit cards will give you a good start, but often times your savings/checking bank you use will be easiest to get a line through.
Again, you don't get to choose, expect 30+% APR. In the end, it won't matter, because you're going to pay off the balance timely and won't utilize interest.
Up to you.
To maximize your credit score, you cannot exceed 1/3 of your total available lines of credit without incurring penalty. Which means if this is your first card, and you have no student loans, no car payments, etc. in your name: take your available line of credit and multiply by .3. If you exceed this 1/3 rule, nothing really notable changes, but your credit worthiness is scrutinized. Again, if you pay off timely, none of it will matter.
Use the card, let the balance report to the credit bureaus, pay off immediately. It's important to note that if you're spending on the card but pay before the billing cycle is up, you report $0 usage to the bureau and receive no benefit for being timely (read as: too early) in your payment.
Any time you pull out your credit card, imagine you're reaching into your wallet and pulling out the same amount of money in US dollars. Never ever ever roll a balance over to the next month, because whatever you bought just got 18-30% more expensive.
If you use credit as a cash replacement, and only a cash replacement, you can never go wrong. It is the fastest and most reliable way to build good credit.
So (and bear with me because I have quite a bit to learn with it being my first card) if I, say, buy a video game with my card, I shouldn't IMMEDIATELY (like, right after I make the purchase) go to my bank account and set it to pay it off, right?
So say I have about $100 dollars in my checking account AT THE PRESENT MOMENT. Does that mean I can only have a card worth $100 instead of $500?
Exactly - if you do, no balance will be reported to any bureau and you get no credit for being good. A credit score is probably better thought of as credit worthiness. In order to prove your credit worthiness (and therefore increase your score over time) you need to show that you 1) spend on the card that was given to you and 2) are capable of showing that you can pay down that spend.
So, what is the typical billing period? I figure it's monthly but does it start a month after "activation" or is it more rigid?
Literally all of this.
This is exactly what I did when I was younger and had no credit, and the suggestion of my mother. The first time I ever looked at my credit score was four years later, and it was sky-high.
Card type, APR, credit limit - none of it mattered whatsoever, because I logged in every three or four days (excessive, but psychologically necessary) and paid off the balance.
One month. Initial activation usually has a shorter period to get you onto the typical billing cycle.
Here's the order of operations:
1. Buy thing with your credit card.
2. At the end of your billing cycle, the credit card company sends you a statement with your statement balance.
3. Pay off the statement balance before the due date specified on the statement (typically early in the month). There's usually a couple of weeks to respond.
Failure to pay off the full balance results in the unpaid portion of the balance being applied to next month's statement; multiplied by the card's interest rate (bad). You must pay the minimum balance specified in the bill at a minimum to avoid penalty charges on top of the interest. Most credit card companies will forgive exactly one late payment per year if you pay the full balance regularly and on the late payment. Banks run on software and software is fallible; watch your auto-pay like a hawk and be ready to make a payment by phone if your auto-pay date passes without a payment being made.
Wells Fargo issued me my first credit card as an unsecured line of credit under their student first-time program which waived the security if my GPA was above some threshold. Try to get an unsecured card if you can.
Honestly, the best way to build credit is to have more income. Find full time work, or part time work that pays you a little better. If that seems difficult where you are at, start networking more, meet new people, maybe volunteer a few hours here and there somewhere to build a different kind of personal credit that can lead to opportunity that can ultimately lead to more income which will ultimately lead to a good credit history. If you are not currently taking any classes, consider a small student loan. If you enjoy PC gaming, honestly, getting something like a CompTIA A+ cert will keep you connected to tech and only take you a few months and a small education investment and get you started somewhere, GeekSquad, MicroCenter, something like that where you will have a little more going for you than the average young guy minding the store and from there you can continue to build your education and employment status. The best way to build credit is more income so you can ultimately manage it well.
CC billing periods are all about one month, based on the day of activation. So if you activated the card on February 3, your billing period would end on March 3, and you'd have 7-14 days (until March 7 or 17th) to pay the bill without late fee.
What @Thrax has given you is spot on. However, I'll throw in a suggestion or two. Start with a gas card from a major supplier like Shell, BP, etc. These cards are easy to get and are a great way to build your credit history. Never mind about your credit line (what the ceiling or cap is on your credit card), just pay it in full on time every month. It doesn't matter if you don't have a car; buy your mom's gas once in a while. Use your card in your name and pay it off each month. You'll be surprised how quickly you'll be reported as a reliable credit risk just by using such a gas card. You can also get a major merchandise card say from Kohl's or Bergners, even Walmart. Buy small stuff and pay off the bill the moment it comes due. Never roll over a credit card balance and never, ever take out a cash advance on a credit card. Cash advances are rigged by the creditor so as to charge you interest from the very moment you take out the advance. Worse yet, even if you try to pay in full a cash advance amount when the bill comes due, most company's will stick you for "odd days' interest" meaning they will charge you interest for the days between when they sent you the bill and the day they received your payment in the mail. This is a sucker play and nearly all creditors do this on cash advances. Lastly, if you have a place of your own and have the utilities in YOUR name, it will go a long way in building your credit rating if you do and pay the balance in full every month. I did this with my wife. Most wives (sorry ladies) don't have decent credit because nearly everything is in their husband's name so even though she pays the bills, he gets the credit rating not her. When my wife and I moved, I had her put EVERYTHING in her name instead of mine: phone, cable TV, water, sewer, electricity, gas etc. That was 3 years ago and her credit score is stellar, higher than mine, 849 vs. 790 for me. Creditors are continually sending her offers in the mail just to get her business. IOW, she is in HIGH demand. Oh, one more thing, if you are paying for car on time in your name and never have a late or missing payment, that goes a long way in building the credit you seek. Just remember: no matter what it is, always pay your bill in full every month. In credit card company circles, you'll be considered 'Charlie Potatoes' in no time and they will be pursuing you rather than the other way around.
The best way to get credit is to prove you don't need it.
The biggest TLDR from Thrax and others who already indicated this, but I reallllly want to reiterate: don't spend what you don't have, regardless of how you choose to make the purchase.
Ditto, cash advances are a trap. When the payment pad at the grocery store asks you if you want cash back after a credit card purchase, be extremely careful to press No. Pressing any of the dollar amount buttons results in a cash advance. Using any of the "checks" your credit card company sends you in the mail, for any purpose, is a cash advance. I just shred 'em.
I highly recommend Googling for what the most rewarding credit cards are in the USA. There are all kinds of categories (travel, flights, cashback, etc) so pick one which suits you and you can also accumulate free money or flights, etc. Some cards will accrue points for other existing programs (eg in Canada we have Airmiles or Aeroplan on some credit cards, or Save-On (grocery store) points), if those are more useful to you. Shop around, find something that'll get you some added benefits too! Some cards also come with travel benefits like insurance, or discounts/vouchers for things. The free cards often have less benefits but that's why it's worth a Google. I wouldn't bother paying for a credit card until you know what you're getting back in points but at a certain point you may get more from the rewards than you pay for the fee. Something to bear in mind for the future.
Another tip: be aware of your limit. The bank will not stop you from going over this limit, they will stop you AFTER you go over it and charge you an overdraft fee (usually about $30). It's evil. I have an Amex now which has no limit but insane interest if you miss a payment.
Automatic billing can be very nice, but bear in mind you have to make sure your bank account always has enough to pay off whatever is on the card around the time you expect the payment to go through. Usually it will be the day you receive the statement. Manual payment means you HAVE to remember, or you're paying that evil interest. I have always done it manually myself. I like to check on my bank account at least once a month and check my statements to make sure everything is as expected and I think that's a good habit to get into. I know when my statements come in and I have e-mail reminders set up for the day I receive my statements and 10 days before they are due (in case I forget to pay them). That's been enough to keep me from ever missing a payment for nine years :-)
Well, I had the application sent in to try for option #1: get a credit card through my bank. I'll share the details of the card I'm going for when I get a chance.
Here are the details for the card I'm going for. I went ahead and took a picture of the document so you guys can read it.
Congrats, looks pretty standard.
Now for your quiz:
1. What is APR and what does it mean for you
2. What's a Prime Rate
3. What's your billing cycle
4. What does "0% APR for the first 15 billing cycles" mean
Hell, I barely know the answer to those.
CUZ I JUST PAY IT OFF EVERY MONTH YEAAAAAA
Here is another thing to be careful of. Never apply for several lines of credit in a short period of time. This is referred to as number of inquiries and more than a few a year can hurt your rating. Because it shows that you are desperate to get credit and is in turn interpreted as needing credit as opposed to desiring credit. So if this application doesn't pan out you should wait 6 months or so to try another. I will tell you that Chase is a tougher bank to obtain initial credit from while Capitol One is much easier. Also, without credit history most rewards cards will try to tap you for an annual fee.
I always set an alarm on my phone 10 days before a bill is due then generally pay it about 7 days before it is due on the cards site or app. I learned not to trust auto pay as has been mentioned sit happens and you are still held accountable.