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I Am a New College Graduate. How Do I Establish Credit?

Written on May 30, 2008 by George Krueger & Mary-Lynn Foster in Bigg Solutions, Challenge, Money

Bigg Challenge
Leah just graduated from college. She has applied for several credit cards and been turned down because she doesn’t have any credit history. She says she’s never borrowed before or even had a credit card. Her bigg challenge: How can she establish credit?

Bigg Advice
Great question, Leah! Here are 3 tips to get started:

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#1 – Get a bank loan.
This will cost you a little but it will be worth it so you’ll have access to money when you need it. Here’s a way to definitely get a loan:

Deposit $1,000 into an account (e.g. a Certificate of Deposit, commonly known as a CD) for a fixed period of time (e,g. 3 months). Ask that same bank for a $1,000 loan to be paid back at the end of the three months. They may require you to pay the interest monthly, or they may not.

Your loan is 100% secured by the CD, so the only risk the bank has is that you won’t pay the interest. You’ll earn interest on the CD, but not as much as you’ll pay on the loan, so you’ll be out-of-pocket a little bit of money.

But you’re establishing credit. At the end of the three months, pay back the $1,000. Now, up the ante. Do the same thing all over again with say $2,000. Then again … each time increasing the amount. Over the course of the year, you may do this four times.

Keep the amount relatively small because you don’t want to needlessly pay interest. You’re establishing that you can pay back a loan of $1,000, $2,000 or whatever the highest amount is that you borrow. Just make sure you make every payment on time.

#2 – Have a savings account, not just a checking account.
You’ll look more favorable to certain companies if you also have a savings account. Don’t think you have to stuff it full of money. It just seems to make a difference that you actually have one.

#3 – Keep a landline phone number.
Some companies seem to feel that this demonstrates stability. They reward you for it by extending credit. So at least while you’re trying to establish credit, maintain a landline phone number.

Thanks, Leah for sending us your bigg challenge.

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Our bigg quote today comes from Benjamin Franklin:

“Remember that credit is money.”

So establish your credit and score!

Next time, we’ll discuss why work life balance doesn’t work. Until then, here’s to your bigg success!

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Related posts

Don’t Fear the Banker!

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Tags: accountant, Balance, bank loan, banks, certificate of deposit, Challenge, checking account, credit card, credit history, earnings, establishing credit, landline phone, Money, risk, savings, security, time, tips

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Don’t Fear the Banker!

Written on May 6, 2008 by George Krueger & Mary-Lynn Foster in Business, Business Ownership, Entrepreneurship, Money

A lot of us are very uncomfortable talking about money, whether that means negotiating your salary, asking for a sale, or asking for a loan. So the thought of going to the bank to get a loan can be very intimidating.

The loan process seems somewhat mysterious. Wouldn’t it by nice to know where bankers are coming from? Then you would be better positioned to get the money you need.

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3 things to understand about your banker

#1 – Banks can’t afford to lose money.
A lot of people don’t realize that banks operate on relatively thin profit margins. So, contrary to popular belief, they don’t make that much money on every loan.

The biggest question every banker has when looking at every loan proposal is …

Will we get paid back?

They’re more concerned about the return OF their investment than the return ON their investment. That comes later.

#2 – Banks don’t fund start-ups.
This is perhaps one of the biggest misperceptions in the business world. People think the bank is the best place to go for money they need to start a business.

To which we say, reread our first point! Bankers are relatively risk averse for the reasons stated above and more. So banks don’t tend to lend money to new, unproven firms.

You might be saying, “But I know people who got money to start their business from a bank.” Here’s the distinction – the bank wasn’t loaning money to their BUSINESS; they loaned them money as individuals FOR their business. If you look deeper, you’ll find that, in almost every case, they secured the loan with equity in their house or some other asset.

#3 – Banks need to lend money.
That’s their business. So if you need money, and you can prove that you can pay it back, and you have some assets to secure the loan, go to the bank with confidence!

Your bank is just like your favorite video store.
Video stores rent DVDs for a fee. Banks rent money for a fee. So going to the bank is just like renting a movie. You have to return the movie and pay a fee. And hey, unlike video stores, bankers don’t charge their fees upfront!