Building credit requires time, track record
Posted on November 30, 2007
Filed Under Advice, Bad Credit, Credit Rating | Comments Off
I’m a legal U.S. resident trying to build some credit. I recently bought a laptop on credit and applied for a credit card that enables me to earn mileage for every dollar I spend. The problem is that the interest rate for both accounts is too high, so I want to pay off the debts. A friend told me that making three or four payments and then paying off the remaining balances in full would help me build some credit. Is that true? It’s a myth that you have to carry a balance on your credit accounts to build your credit history. What’s important is having and using credit — carrying balances typically is just money down the drain.
Carrying balances on reward credit cards or retail credit accounts is particularly foolish because these accounts tend to have higher-than-average interest rates.
Take a look at your credit reports to make sure the accounts are being properly reported to the credit bureaus. If the accounts don’t show up, they’re not helping you build a credit history. You’re entitled to free annual copies of your reports from each of the three bureaus — Experian, Equifax and Trans Union. You can access the reports online at www.annualcreditreport.com.
You should continue using your credit card, but make sure not to charge more than about 30 percent of the account’s credit limit to avoid hurting your credit scores, the three-digit numbers lenders use to gauge your creditworthiness. Pay off the balance before the due date to avoid finance charges. After a few months, consider applying for a second major credit card (Mastercard, Visa, Discover or American Express) and use that as well to continue building your credit history.
How long before a due date is a credit card issuer required to send you a bill? I thought it was two weeks, but the time period seems to have gotten shorter. The bill for one of my cards arrived only 11 days before the due date. Because I get paid every two weeks, I run the risk of sending my payment late or having my payment check clear before my paycheck is deposited into my bank account.
The late arrival of my bill seems designed to cause me to make a late payment and therefore incur a late fee or interest rate hike. Do I have any recourse, other than complaining to the issuer or switching cards, to have my bills arrive in a more timely manner? I could choose to receive my bills online, but because I work for the post office, I prefer to conduct business through the mail.
The federal Fair Credit Billing Act requires credit card issuers to send your bill at least two weeks before the account’s due date. Note the word “send.” There’s nothing in the law that requires the bill to arrive in your mailbox at a certain date.
Delays in receiving bills are why many people have switched to online banking: It’s typically faster and more secure, not to mention cheaper. If you’re not ready to do so, at least consider the following steps:
Get online access. Sign up for online access to your credit card accounts so you can monitor your balance and check your due dates. Many issuers also allow you to sign up for e-mail alerts so you’re automatically notified when there’s a new statement.
Mark your calendar. It’s helpful to have bill due dates noted on a calendar you see frequently as a backup reminder.
Create a financial cushion. If you can’t pay your credit card bill in full when it arrives, you’re living a little too close to the edge. Charge less and build up a larger cash cushion in your checking and savings accounts.
Change your due date. If the primary cause of your financial crunch is that you’ve got too many bills due at the same time, see whether you can move some of the due dates around. Many credit card issuers will let you change your due date to a time of the month that’s more convenient.
Enroll in an automatic debit payment plan. To ensure that you never pay late, consider having the minimum payment amount automatically deducted from your checking account. You’d also be smart to sign up for overdraft protection for your checking account to avoid returned check charges and fees.
By Liz Weston