In my early 20’s I was clueless about money, so I’m so proud of my niece who texted me asking how to start establishing credit.

I do follow many of Dave Ramsey’s philosophies (he is completely against credit cards and uses a debit card instead). I do know that it helps to have good credit when buying a house if you cannot rent long enough to save cash for it (actually I wish I could have done that, but save for another post)). A house should be a blessing and so should a car that one can afford.

But how does a young person start?

The classic adage of “borrow $100 from your bank and then pay it back in 1 month” is probably still valid and will cost less, but what if they won’t lend you that?

Never ask someone to cosign for you. It’s time to grow up and live on beans and rice until you establish yourself.

I started looking at secured credit cards on bankrate.com.

So, how do they work?

Very much like renting an apartment with a security deposit:
The bank (landlord) doesn’t trust you at first, so you need a “security” deposit that CANNOT be used towards purchases. It’s for the privilege of getting a piece of plastic and in case you are bad with money (your dog wees on the carpet), they keep your deposit.

You can put as little as $49 down plus $29 annually to get a Capital One Secured Credit Card.

$78 as a “deposit” gets you $200 in credit to use. REMEMBER-you only get that $78 back if you use the card properly after a year or two. This does not “fill up” the card with $78 to use. It’s possible you may never get that $78 back.

How would I use it if this was my “newbie choice” knowing how FICO score works?

*NOT FOR EMERGENICIES.

*NOT FOR GOING OUT.

I would buy maybe $10/mo. on cheap groceries.

I would probably choose the Capital One secured cc. Here’s a list to compare:
http://www.bankrate.com/credit-cards/secured-cards.aspx

I would immediately hop onto the Capital One app and pay the $10.

Why?

THE #1 calculus in the credit score (35%) is PAYING ON TIME.

Another big one? The RATIO of credit available to you vs. how much you use:

$10/200 is 5%.

FICO will be happy about that kind of usagae, just like your landlord will be happy if you don’t have a lot of pets and ruin the carpets.

If you maxed the card @ $200/mo each month EVEN THOUGH YOU PAY IT OFF, you may get DINGED on your FICO score.

Seriously? Yep.

Welcome to the adult world.

If I already had a credit card, would I do this?

NO.

I would just minimally use my credit card, like $10/mo and keep on building credit.

It’s an expensive way to start, yes.

So, try the borrowing $100 from your bank first.