How To Establish Credit

When you are first trying to obtain a credit card or other type of loan it can be difficult and frustrating if you do not have a credit history. If you are trying to establish your initial credit history you need to be aware that it can be a Catch-22. If you don’t have any credit, many places will not be willing to give you credit, yet how can you ever establish credit if nobody is willing to give you any? But before you simply throw up your hands and give up trying to establish credit understanding a few basic credit principles can make it much easier. Here are some of the basics on what you should know on how to establish credit-

• Understand what lenders are looking for-It is crucial that you understand what lenders are looking for. Since you do not have credit history lenders cannot look to your FICO score to determine whether or not to lend you money. Because of this they have to examine other factors that can help them decide if you are a credit risk or not.
• Consider starting with a credit building card-Since this type of card does not require credit to open, it also does not get reported to the credit bureaus to establish any credit. Yet a timely and well maintained account history can be a vital component when lenders consider giving you a credit card or loan for the first time.
• Employment history-This will be a vital factor that a lender will want to see when determining whether or not to extend credit to you. They will want to see if you are able to hold a job or if there are periods of unemployment. Your ability to hold a steady job can improve the likelihood of not only getting approved but being extended a better line of credit.
• Residence history-Lenders will want to look to see how often you move and whether you rent or own. Banks and other financial institutions consider homeowners with longer periods of residency as lower risks than other people. In short it pays to have a stable residence and owning a home, even if just jointly with a spouse, carries some weight as well.
• Utilities in your name-Do not overlook how utilities can help in establishing credit. Even without a credit history, it is possible to sign up for many of your utilities in your own name. Having an electric or gas bill, telephone, cable, or water service in your name can help in establishing credit. Be aware though that just having your name on these accounts will not establish a credit score, but it can be helpful for first-time borrowers.

Now that you know what the lender will be looking for here are some ways to establish that credit-

• Start with your bank-There is certain steps you should take right away to help in your quest for establishing credit. The first thing you will want to do is open and maintain a checking and possibly even a savings account at a local bank. This is helpful in two ways: When you have active bank accounts that are in good standing, you are proving that you can manage money. While bank accounts are not typically a part of your credit score, lenders can use this information to determine whether or not you are a credit risk. Also, establishing a relationship with a bank will improve your chances in obtaining a loan or credit card through them. If you already do business with a particular bank, they should be the first place to look. They know you and they should value your business. This existing relationship might carry some weight when seeking credit.
• Consider a Department Store Card-Because these types of cards generally carry a very high interest rate it can be a good idea to avoid them unless you are trying to establish credit. If you have struck out at the local bank, you may want to consider checking with one of the local department stores to see what type of cards they offer. It is critical that you find out whether or not they report to the credit bureaus. If they do not than this card will do you no good. Above all else make sure that you are disciplined and careful about how you use this card remember your goal is to establish credit.