Credit Question AND Tax Question?
**TAX QUESTION**
Let’s start with the easy question. At my job, if I were to put 2 exemptions on my W4, will I owe money to the state next year? I’m a single female with no children.
**CREDIT QUESTION**
I have nothing on my credit report except for an unpaid medical bill (long story). I want to establish my credit without screwing myself over and going into debt. I’m responsible with my money, but I don’t want to have to worry about insufficient credit when I go to buy a home or a car. I have my name on a lease, but not on any bills except my phone bill. I have well established accounts at the bank and have never overdrawn anything. I have applied for credit cards, but I was rejected due to insufficient credit.
I work at a bank and I was told by our loan officer that I can get a secured credit card through my savings account. With a balance of $750, they’ll freeze that amount and give me a $500 credit card. She told me to use it and pay more than the minimum payment but leave a balance. After 3 months, it will look good on my credit and after 6 months, it will look great, according to her. Then, she says I can get a credit card at a department store to maintain my credit while I’m in college. Does this sound like a good idea or is there a catch that she isn’t telling me? I’d only use it for gas each month, so I wouldn’t spend more than $200 on it monthly.
I also have student loans but I don’t have to pay them off until after I graduate. Once I start making those payments regularly, will that help my credit as well?
Sorry if these are stupid questions, but I don’t know much about this stuff.
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6 Answers
Oh, and for those that might suggest having someone co-sign a loan for me, that isn’t an option. I know no one with good enough credit to do that.
Tax Question:
It depends on what else you are claiming. No one here can truly answer that question for you without knowing how much you make, what other deductions you have coming out of your pay check (IE: Retirement / Medical), and what other credits you could be claiming at the end of the year.If you don’t have anything then with a two you probably will owe money.
Credit Question:
I started out in the same situation as you. I had to get a secured credit card and I was told paying more then the minimum but leaving a balance would look good. As far as my credit union is concerned it did because about a year later they converted me to an unsecured credit card with them because I was good client. But my score didn’t really go up that much because I also had some past due accounts on there. It started to go up once I paid those accounts off and had them removed from my credit report.
I don’t know about your student loans. Are they there now? If not I would find out if they will appear when you start paying. A lot of places just like to check credit but they don’t actually report on it unless you go deli-quint.. IE: Rent, utilities etc. Never any positive reporting.. but the minute you don’t pay….
Tax Question: It depends, but probably you would be OK.
Credit Question: Her plan is a sound one.
If you claim more exemptions than you actually have, then you could really get yourself into a mess. If you have a mortgage that is providing you will a decent tax shelter, then you could probably claim one more than just yourself. Otherwise, I woudn’t recommend it.
Your loan officer is giving you great advice. That is how my daughter repaired and built up her credit.
1. As others have said, this depends upon your income. Here is the IRS Withholding Calculator.
2. Yes, this will help build credit. I question the $750 deposit required for a $500 credit line. The ones I have seen usually require a deposit in the same amount of the credit line not above it. I would shop around for this. I am biased as I prefer Credit Unions to banks any day of the week. Ensure they will put your deposit in an interest bearing account. Make sure you get the lowest interest rate and fees possible.
Some fees to look out for:
Application fee
Annual fee
Cash Advance fee
Late payment fee
Over the credit limit fee
Set up fee
Phone payment fee
any customer service fees (reporting to credit reporting agencies, customer support, account review)
3. Yes, once you begin paying off your student loans, it will help build your credit as well.
1. To be safe, I’d claim 0. You’d get more taxes taken out (which you would quickly learn to live with) but you’d probably get a refund and definitely wouldn’t have to worry about paying back.
2. Agree with your bank manager’s plan. This requires will-power. Don’t spend more with your credit card than you could pay in cash at that moment. Remember, it’s for building credit, not for getting “wow” stuff. NEVER say, “Well! I don’t have to pay this for another 30 days so I can buy this wow thing and come up with the money later!” Use it for groceries, gas, things like that that you pay for in cash now.
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