3



900 N. Kings Highway, Cherry Hill, New Jersey 08034
856.667.4100 · 215.563.0276 · Fax: 856.667.3652

Money Management (Distributed by the New Jersey Society of Certified Public Accountants)

What You Need to Know About Establishing Credit

If you are trying to establish credit for the first time, you're likely to find yourself in a Catch 22 situation - you need credit to establish a credit history, but you can't get credit without a credit history. While this may seem challenging, it's not impossible, says the New Jersey Society of Certified Public Accountants (NJSCPA). Here are several ways to demonstrate your creditworthiness.

Open a Bank Account
 Opening a savings and/or checking account is the first step in establishing a financial history. Follow the bank's rules and be sure you don't overdraw your account. While bank accounts don't create a credit file, their very existence demonstrates that you have money and shows you can handle it responsibly.

Put Your Apartment and Utilities In Your Name
 This allows you to establish a regular payment history under your own name and Social Security number. Recurring bills, such as rent, utilities and car insurance payments paid in a timely manner, can indicate that you are a good credit risk. Keep copies of the bills and your canceled checks. You might also ask your landlord, utility company or insurance agent to write letters on your behalf stating that you have consistently paid your bills on time.

Apply for a Charge Card
 Consider applying for a department store or oil company credit card. These cards usually carry low credit lines and are typically easier to obtain. The interest rate may be high, but if you pay the entire balance each month, the rate won't matter. Before opening one, ask if the lender reports repayment information to a recognized credit-reporting agency. Not all do. You don't want your efforts to establish a credit rating to be wasted.

Consider a Secured Credit Card
 Another way to establish credit is through a secured credit card. With this method you deposit a specific amount into a special account, and you receive a card with a credit limit that equals your deposit. For example, if you deposit $1,000, your credit limit will be $1,000. In effect, you are borrowing against your own money and paying interest to do so. Although this is not a good financial deal, it's a viable way to establish credit.

Shop Carefully for the Right Card
 When you feel you have established a record of responsible payments, search for cards with low fees and interest rates. Be sure to read the fine print regarding terms and conditions and take note of the late payment penalties. Beware of cards that offer low introductory interest rates and then increase significantly after the introductory period.

Once You Have Credit, Protect It
 Once you have a credit card, establish a good history by using it responsibly and making timely payments. Be sure to allow several business days for payments made by mail.
Also, protect your credit history by safeguarding your credit cards. Carry only the credit card you expect to use and keep others in a safe place. Maintain a list of account numbers and telephone numbers of the companies that issued your cards. This way, if the cards are lost or stolen you can notify the companies quickly.
Finally, be sure to check your credit report at least once a year to verify its accuracy. You can do this through the websites of the three largest credit reporting agencies: Experian (www.experian.com), Equifax (www.equifax.com) and TransUnion (www.transunion.com).

Treat Credit Wisely
 Credit is an important financial tool. Used wisely, you may be able to make necessary or big-ticket purchases without incurring excessive interest-rate charges. If you need help in understanding how to leverage credit, a certified public accountant (CPA) can provide valuable advice. If you don't have a CPA, you can easily locate one online using the NJSCPA Find-A-CPA service. Just go to www.findacpa.org and in a few clicks, you can locate a highly qualified professional who is right for you.


If you would like to receive more information on various financial matters, subscribe to E-CPA, the NJSCPA's free, monthly email newsletter. To subscribe, visit www.njscpa.org/finances or email a subscription request to e-cpa@njscpa.org.

Current Money Management] [Business Information] [Home]

Money Management is a weekly column on personal finance distributed by the NJSCPA.

untitled

This site designed and maintained by the Information Technology experts at Alloy, Silverstein, Shapiro, Adams, Mulford, Cicalese, Wilson & Co.

We appreciate comments concerning our website. Contact our webmaster .