Read on to find out why being a financial ghost can make it tough to find cheap finance for the big things in life. And more importantly, how you can fix this.
Too Financially Responsible?
Here’s the scenario. You’ve just graduated college. Got that (very expensive) four-year degree. Landed yourself a great job and found the apartment of your dreams. You even managed to scrape by with no credit card debt! Great, right? Slight problem actually. The thing is, when the time comes to do things like rent an apartment or buy yourself a car, you find out that you’re a ghost. They won’t give you credit unless you have credit. What’s the deal with that?
So you’re effectively getting punished for not getting yourself into debt? Sounds crazy, but it’s true. With no prior credit history to investigate, many companies will either deny you credit or offer a rather unappealing interest rate.
So how do you get around this? How do you get a credit history when no one will give you credit?
The option a few people might think of is a prepaid credit card.
It’s true that you don’t need a credit rating to get one, but it also doesn’t build you any credit when you use it. It’s effectively a debit card because you’re putting your own money into it, rather than using the bank’s. Good for a quick fix if you have no credit and don’t want to get into debt, but not so good if you’re looking to build your rating.
A different option that does allow you to build credit as you go is a secured credit card. So what’s the difference? Well, for the secured credit card, you need to provide funds up front to gain access to the card. A deposit is made to the card, which can vary in size depending on the amount of credit limit. Instead of just chipping away at the money deposited, like a prepaid card, your deposit is stored and you borrow the bank’s money for your purchases, just like a regular credit card.
You still pay monthly payments like a regular credit card, still pay interest monthly, and still have the option of paying your minimum amount due, or the full balance. In fact, a secured credit card is almost exactly the same as a regular credit card. Only difference is, because of your lack of credit history, the bank is making you pay a deposit just in case. Usually, the lending bank will let you convert a secured card into an unsecured card after a period of time, at which point you should get your deposit returned.
So what’s the caveat to this? Well, secured cards often come with fees. These can range from application fees to annual fees and almost certainly monthly interest fees. There are options out there for secured cards that charge no annual fees, so shopping around is a good idea.
Small Balance Credit Card
There are also some credit card companies out there that will give you a real deal credit card with little to no credit history. I myself, a former ghost, managed to get a Capital One card while still in ghost status.
This locked down credit card may banish your ghostly issues!
Sure, the credit limit might only be a measly $200.00 or so but it’s always a good place to start! I found that after using my $200.00 credit limit for a few months and never missing a payment, the credit card company found me much more appealing and increased my limit fairly quickly.
This situation doesn’t just apply to ghosts, it might also ring true for those who have a credit history, but it’s not that great. People new to the U.S., like myself, often have a tough time establishing a credit history, even if they have 20 years of history in their home country with not a single missed payment!
As always though, getting yourself into huge amounts of debt is never a good option, so get your social security number associated with those utility bills and be on the lookout for some low limit, low cost, low fee credit cards and you’ll be on your way to being ghost free in no time!
I hope you enjoyed my first foray into the wonderful world of Wealth-Hack. What do you think? Have you got any hints and tips that can help others move out of a ghostly status? Are you a ghost in need of help? I would love to hear from you in the comments section below.
If you want to find out more about how the credit score is built up, click our Wealth-Hack article here to find out more!