Hints for Building a Credit History

One of the most difficult things to create when it comes to personal finance is a credit history. Even more importantly, it can be somewhat challenging for some people to build a reputable credit history. Since you probably are not an heiress to a billionaire hotel tycoon or a filthy rich rock star, you need to take steps to building a credit history in order to gain access to vehicle loans, mortgages, and even credit cards. So, how can you go about achieving this goal?

An Evolving Understanding Develops

Credit card companies really started taking notice and looking for ways to help people without a credit history in response to the number of illegal aliens residing in the United States. These individuals work in the US and earn a salary. But, since they don't have a social security number or a defined immigrant status, they were not considered eligible for credit by the traditional credit sector of financial America.

The credit industry began to realize that they were missing out on a huge market by denying these illegal aliens credit. After all, the 2000 census showed that there are up to 11,000,000 illegal aliens living inside the USA. In 2006, this number is estimated to be near 15,000,000. If these illegal aliens earn only an average of $1,000 per month, that creates a $15 billion market for credit card issuers. And while not as large as the American credit market as a whole, it is still a significant market that credit card issuers and banks could no longer ignore. As a result, many companies started scrambling for ways to offer illegal aliens a way to build and to have credit. And consequently, this move by financial institutions to exploit this underserved market also benefited American citizens with no credit as well.

Applying for a Prepaid Debit Card

A good first step to start building credit might be to acquire one of the many prepaid debit cards from one of the financial institutions offering them. Some examples are the Wired Plastic Prepaid Visa and Eufora's Preferred Prepaid MasterCard. Unfortunately, as prepaid debit cards, some of these cards will not report your payment history to the major credit bureaus and will not contribute to reestablishing your credit. Certain cards, however, like the Eufora Preferred Prepaid MasterCard, for instance, will offer credit bureau reporting as an optional feature for an added fee. If you’re trying to reestablish your credit with one of these prepaid cards, be sure to utilize this feature.

Once this has been done, you will need to use the credit card for at least a year, preferably longer, before taking the next step. Building a credit history in the credit market is not necessarily difficult, but it is not easy either and you will need to be patient while you’re establishing it.

Applying for a Non-Prepaid Card

After you have established a bit of credit history with a prepaid card, the next step is to apply for an unsecured credit card that requires no prepayment, such as the Orchard Platinum MasterCard. If you are still having difficulty getting a credit card, try applying for a gas card or a department store credit card. These cards are generally much easier to obtain. In fact, the only requirements are usually to be more than 18 years of age and to have a steady income.

Of course, you are limited on where you can make your purchases with these cards and on what you can buy. But, use the cards whenever they fit naturally into your purchase plans in order to continue building your credit.

Open a Bank Account

Meanwhile, it is a wise decision to open a savings account at a major banking institution and to start depositing money in the account on a regular basis. That way, if a financial entity wants to know more about you, it will find your savings history. To a lending institution, a savings history will indicate a certain degree of financial stability. That is the kind of characteristic a bank or lending institution looks for in its clients. Although this information is not included in your credit history, it can be used as a reference when you apply for a loan.

If you have taken all of these steps, you should now have no problem when applying for a loan or a credit card - assuming you have taken care to be responsible with your credit card usage and are making your payments on time. So at this point, the next logical step in trying to establish a credit history might be a car loan, which will also go a long way in further helping to establish your credit. Obtaining a car loan and establishing a solid, consistent and reliable payment history will go a long, long way toward establishing a solid credit foundation.

Before you know it, you will have lenders beating down your door in anticipation of doing business with you.