How to start building credit?

[Brandie]

I’ve just turned 18 and I want to start building credit ASAP so that I’ll have a good enough credit when I need to buy a car or a home in the future.

I’ve applied for a credit card with no annual fee and a 20% APR, but I’m not sure I fully understand the APR thing…What is it for?

Should I get that credit card, or should I do something else? And if I do get the card, how do they charge the APR, and how does it work?

Thank you…

[Tracy Winters]

Don’t worry about the APR

APR stand for Annual Percentage Rate. If you pay your statements in full every month (the right way to go) than you should not be concerned about it. APR only matters if you don’t pay the credit card balance in full every month. If you carry a balance from month to month – you are charged interest. The interest is calculated by dividing the APR by 12 to get a monthly rate. Your average daily balance is multiplied by the month rate. That’s the interest, and it is added to your account.

Carrying a balance on your credit card can be very expensive (it’s like buying everything 20% more expensive in your case!) and doesn’t help a bit to your credit score. Not to mention that very soon you end up buying more than you can actually afford and sink into heavy debts.

What build credit is timely payments, month after month. As long as you wait for the statement and pay the balance in full every month – a credit card is an excellent way to build credit.

Keep in mind that the new laws require people under 21 to provide proof of sufficient income to qualify for a credit card or have a parent co-sign instead. Most credit cards will want to see at least 12 months of full time work history to go with that income. If you don’t get that card, you may have to start with a secured credit card – you pay a deposit which is held as collateral against the line of credit.

See establishing-credit-history.html for more information.

Good luck

[Author]

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