Dear Let's Talk Credit,
I am a 25-year-old male who graduated college in May. I am moving to Boston in a few months and have been told that I need to build credit as landlords look at your credit prior to renting to you. First and foremost, is this accurate? Currently, I have a debit card from a local bank. It has a MasterCard symbol on it. However, whenever I use it the amount is taken out of my checking account. I want to get a credit card and ONLY use it for minor purchases and build my credit. I have purposely avoided credit cards like the plague as I know how awful debt is and have thankfully avoided it my whole life. What cards do you suggest and what should I look for when selecting a card? I won't be using it daily or even weekly, just enough to build credit. Thank you.
Yes, it is a common practice for landlords to check your credit when you apply to rent a home or apartment. Just as potential lenders use your credit report to determine if you are a good credit risk, landlords use the same information for the same reason. Landlords may also check one or more of the many specialty bureaus that collect rental history information. Having no credit or rental history is not necessarily bad, but it does not provide the landlord with an accurate way to determine if you will pay your rent. You are correct that your debit card purchases do not get reported to the credit bureaus.
Establishing a positive credit history is a good idea, but I'm not sure that a few months of one credit card account will be enough to help you secure rental housing in Boston. You may need to have someone with an established credit or rental history co-sign your lease for you. If you decide to use a co-signer, ask the landlord if it is possible to have your co-signer removed from the lease after a pre-determined number of months with on-time rent payments. If you can deposit a larger amount, you may be able to convince the landlord to lease to you without a co-signer.
You are wise to be cautious about using credit cards, but it would good for you to begin to establish credit. Applying for a credit card is a good place to start. Plan to use the card for only those purchases that you will pay off each month to avoid accumulating debt. I recommend that you search for a card that provides some type of rewards that would make sense for you. Depending on the rewards card you choose, your purchases will earn points towards airline miles, cash back or other items. As a fresh graduate with a thin credit file, however, you may not qualify for a rewards card right away. I would suggest you pay a visit to your bank since they know you there and talk to a representative about getting a credit card. Whatever you do, do not apply for numerous credit cards within a short time frame as those lender inquiries into your credit report will temporarily ding your credit score.
In addition, your rental payments may help you to build credit as well. Experian and TransUnion include positive rental payments on their credit reports. However, you will need to check with your landlord to see if they report rental history.
Good luck with your move to Boston and let's keep talking!