Dear credit card avoiders, off-the-gridders and people who somehow managed to avoid the scourge of student loans: Congratulations. And I'm sorry.
Congratulations because living debt-free is a noble goal. And I'm sorry, because living debt-free also means you're invisible to the shadowy forces that control your financial future. If you want to qualify for a car loan or a mortgage one day, you're going to have to show lenders that you're responsible with your money. (I know, I can hear you saying "but doesn't living without debt make me the most responsible of all?" It doesn't make sense to me either. I'm not endorsing the game, I'm just telling you how to play it.)
So here's my 12-month plan for building credit from scratch. It's as good a New Year's resolution as any.
January: Go to your bank and ask for a secured credit card. These—I'm not going to sugarcoat it—are no fun at all. Basically, you'll give the bank a certain amount of money as a security deposit of sorts. That amount will be your credit limit. You can use it as a normal credit card after that: Buy a few things every month and get in the habit of paying the full balance on time.
Before you bite the bullet on a secured card, make sure your bank reports your activity to all three credit bureaus, and make sure the annual fee (it will probably have one -- I told you these were no fun) is an amount you can handle.
March: Get to know your credit score (remember, that's the three-digit number that grades your creditworthiness on a scale). Plenty of places let you check it for free. My favorite is creditkarma.com, which also has a smartphone app.
April: Ask to get the limit raised on your secured credit card. This might mean you'll have to deposit more as collateral, but it will be worth it, since a big part of your credit score analyzes your credit utilization (translation: the amount of credit you've used in relation to your credit limit).
June: Apply for a store credit card. Promise yourself you won't carry a balance on it, because even though store cards are easy to get, their interest rates are notoriously high.
August: Make a habit of checking your credit report regularly to make sure it's accurate. You can view it for a small fee three times a year at annualcreditreport.com.
October: Make another appointment at your bank and ask them to unsecure your credit card. This generally isn't done until you've had the card for a year, but if you go in person and plead your case to a real human ("Look how responsibly I've been paying this off!") the bank might be flexible. And you'll get your deposit back!
December: Continue using your newly unsecured credit card responsibly, and start researching other cards you might want to apply for. There are great cards out there for cash back, airline miles and other rewards. Once you establish a decent credit history, the sky's the limit. Happy New Year!
Megan Crepeau is a 20-something RedEye columnist trying so very, very hard to get her money situation on track.
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