A Special Day: This post marks #2,000 in the saga of the Frugal Travel Guy! Thanks for your continued support, comments, and criticism. We look forward to our next 2,000 posts to come.
With a constantly growing readership, and the continuing importance of credit card sign ups as the current primary means of accruing frequent flyer miles, it seems appropriate for a refresher on the this bonanza of free travel and how those new to credit cards can take advantage.
1. If you don’t have a credit score you need to establish one. To see if you are on record with the credit reporting agencies, try one of the free sites on the left hand blog column to see if they can pull up a score for you (CreditSesame, CreditKarma, Quizzle). You can also use AnnualCreditReport.com to check if you are in the system. If you have a score, get used to committing it to long term memory. You’ll constantly want to monitor your score. It’s one of those things about growing up we were never taught in school.
Your credit is one of your most important assets.
2. If you don’t have a credit score, step #1 in establishing a credit file is open up a store charge card. Macy’s, Banana Republic, Old Navy, the GAP, and ask to open a retail charge account. Also be sure to ask if the activity on the charge card is reported to the credit reporting agencies just to be safe. Yes, you will need to buy something using the card, and pay it off promptly. If you buy something for $20 and the store card offers extended payments (some don’t, so read the required minimum payment line on your first bill), pay the minimum payment the first month, and then the remaining balance when the second statement goes due. Remember some store charge cards require payment in full with each statement received.
By opening this account, making a charge and paying it off on time you have established a credit file and now have a open retail account on your file. Way to go.
3. After using your store credit card successfully for three to six months approach a small town bank or credit union and ask them about a installment loan secured by a CD or certificate of deposit. Call before running around town as many larger banks won’t offer this service. Once you find a friendly banker, take your excess available cash to the bank and deposit it in a certificate of deposit for the shortest term possible. Before handing over the cash make sure they will agree to grant you an installment loan for, lets say 50% of your deposit. Deposit the money and borrow 50% of it back and tuck it under the mattress. You’ll be making monthly payments on your installment loan, secured by your CD, and in essence are paying yourself back and establishing good credit with your bank. When the certificate of deposit matures (6 months is a good short term CD), you will have paid off your loan and can now withdraw your CD funds. If you don’t have the cash for this transaction this is a good place in life to explain to a relative or trusted friend you are establishing a credit file and could use their help if at all possible.
Your credit file is now blossoming. You have an open retail account on your file and a second type of credit, an installment loan on your file. Look again to a free credit score trial and see what the results of your efforts have produced. You should now have a credit file and a credit score that you will work on and improve on with age and timely payments for the rest of your life. If your credit score is over 700 on an FICO style scale you can now probably apply for and be approved for your first premium rewards travel card. Go slow, pick only one and make sure you understand the requirements to receive the lucrative sign up bonus. Is there an annual fee? Is there a required minimum spend to earn the sign up bonus? How much time do you have to reach that minimum spend and is that reasonable?
4. If your new credit score is not over 700 at this point, time will help increase the score, or you may need to apply for a secure credit card that reports to the credit reporting agencies. In this case, you’ll make another deposit with a financial institution and will be granted a credit card that is secured by that deposit. If you don’t make your payments on time, they institution is secured by the funds you have on deposit with them. Of course, you’ll pay ontime and in a short period will have a secrued credit card account listed on your credit file.
The costs associated with establishing a credit file are minimum and necessary. If you pay off a retail charge account over time (if permitted) you’ll pay interest. On your CD loan you’ll pay interest and the same holds true for your secured credit card. We are talking about small amounts that you will easily recoup when granted your first travel card. Those rewards will far exceed the costs of obtaining a credit file.
All of us old timers have gone through this in the past in one way or another. A well rounded credit file is part of American culture these days. Without it, you miss out on buying a car, going to college, or owning a home. I spend a vast majority of my life loaning people money in the mortgage banking business and have counseled thousands on improving or establishing their credit files.
If you have questions, ask. I’ll try to answer your email within 48 hours and will get you started on the right path. You can reach me at firstname.lastname@example.org If you follow my advice and pay your bills on time, the American dream can come true and you will see the world at prices you can afford.
Your credit is one of your most important assets.
Deal of the Day
For today’s Deal of the Day American Airlines AAdvantage® has provided 2500 AAdvantage® miles for the best deals, fares, promotions, anything related to American Airlines, their oneworld partners or AAdvantage® partners. Add it to the comments section of this post or this afternoon’s Deal of the Day post (with your first name, last initial, and home airport) to be eligible to win.