You may be ready to try and establish credit so you and your spouse can reach those goals you've been talking about. The problem is, neither of you has a credit card and both of you have a relatively short credit history. You both use pre-paid debit cards that promise they will help build your credit score. The problem? That method doesn't work and you'll need to find other options.
Debit Cards versus Credit Cards
The difference between debit and credit cards is quite simple — a debit card is loaded with cash you already earned and a credit card's value is the amount a bank is willing to loan you. You then pay it back with interest at regular intervals showing that you can be trusted to pay back a loan. A debit card will not help you build credit because there is no credit involved; your are spending your own money. The purpose of a credit report, and therefore a credit score, is to demonstrate that you can be trusted to pay back borrowed funds. Credit cards, but not debit cards, fit that bill.
I Can't Get a Credit Card
If a debit card can't build up your credit, and you don't qualify for a credit card, you should know what will build up your credit so you can concentrate on those areas. Paying your bills on time is the number one way to keep your credit on the right track. However, only payments that are reported will figure into it. Student loans are reported to credit agencies so always pay those on time. Car loans, mortgages and revolving charge accounts such as retail store cards, also build up your credit. These payments are always reported. What frequently aren't reported are cell phone bills, utility payments and cable bills. Generally, the only time these are reported is if they're late. They won't build your credit.
Secured Credit Cards
If you and your spouse have little or no credit, you may qualify for a secured credit card. With a secured credit card, you deposit an amount of money up front, for example $300 to $500. This is now your line of credit and you can't exceed it. However, since this is classified as a credit card, the issuer should report your payments and balance to at least one credit bureau. This will affect your credit score and help you build your credit history. As your credit builds, you will begin to receive offers for unsecured cards. Before you sign up for a secured card, ensure the issuer will report your history, and shop around — fees and interest rates vary.
Suze Orman's Approved Card
Financial guru Suze Orman came out with her own debit card that has one unique feature — she will share transaction information with credit bureau TransUnion. In exchange, in two years, TransUnion will decide whether debit card activity will predict future behavior and whether or not it should be considered in determining a credit score. The card debuted in January 2012, so TransUnion's answer to this question won't be decided until January 2014. In the event that this project is successful and you use a debit card anyway, you may want to jump on this one so you're in on the ground floor. It would also behoove you to get a secured credit card just in case TransUnion decides not to consider it. At least then, you'll know you're building your credit while you wait.
Julie Segraves is a freelance writer and photographer. She has written for several community newspapers in Chicago and authors her own blog. Segraves graduated from Loyola University with a Bachelor's in sociology and a minor in criminal justice. She currently works in the IT field as a mainframe operations analyst and disaster recovery specialist.