Tips for Establishing Credit

If you have yet to establish a credit history for yourself, you may discover that it is difficult to get a car loan, credit card, or mortgage. Therefore, you should start working on creating a credit history as soon as possible. Here are a few simple tips for getting yourself established.

Tip #1: Open a Bank Account in Your Name

Your bank account information does not show up on your credit report, but you will be asked to supply a bank account number on your credit applications. The lender will use this information to help determine your financial history and responsibility with your bank account. Make sure you never overdraw from your bank account. Not only will this result in fees, it will reflect poorly when the lender asks the bank for a reference.

Tip #2: Apply for a Credit Card that is Targeted Toward You

Applying for, and receiving, a credit card is one way to start establishing credit. But, make sure the credit card you apply for caters toward people with no credit history. Otherwise, you are likely to be denied – which will not look good on your credit report. Usually, the best choices are gas credit cards or department store credit cards rather than MasterCard and Visa cards. Also, make sure the card you apply for reports to the credit bureaus. If not, the card won’t do much toward establishing the credit history you desire.

Tip #3: Use Your Card – and Use it Wisely

Now that you have received a credit card – use it! An inactive card does not help your credit history much, as it doesn’t show whether or not you can be responsible. So, make purchases with your card and make all of your payments on time. To avoid creating a huge debt, purchase only as much as you can afford to pay off at the end of every billing cycle. After only three months of responsible usage, you may be able to get a MasterCard, Visa, Discover, or American Express card. These cards will give you more freedom and flexibility in the purchases you make.

Tip #4: Go Secured

If you simply cannot seem to qualify for a credit card – even a gas credit card or a department store credit card – consider applying for a secured credit card. With a secured credit card, you send money to the credit card company ahead of time. Therefore, the money you spend with the card is really your own money. Although this system is really more like a debit card, it can go a long way toward building a credit history or repairing one that has been ruined. Just be sure the card reports to the credit bureaus and look for the card with the least amount of fees, as secured credit cards can be a bit costly to have.

Tip #5: Ask Questions

If you are denied credit, don’t be afraid to ask the lender why. Discovering the reasons for your denial – which can range from employment, to income, to credit history – can help you determine what you need to do to resolve the problem. Also, it may help you find out that there are errors on your credit report. Ask for a free copy and set about correcting any mistakes the report may have that reflect negatively on your credit score.

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This entry was posted on Sunday, August 20th, 2006 at 1:29 pm and is filed under Tips & Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.