Here are Seven Basic Steps to help you establish credit:
- One way that you can begin to establish credit is to open up an individual savings or checking account in your name. Over a period of time, maintaining an account in good standing by managing your deposits, withdrawals, and debit card usage will demonstrate that you know how to manage money responsibly.
- Another way to establish credit is to take out a personal loan. Keep in mind that this will involve cost, because loans require interest payments. However, even a small personal loan can help a person establish credit. It may be necessary for you to secure the loan with funds that you have on deposit at the bank, or by personal items you own, such as a car. Once a loan is approved, make sure all payments are made promptly.
- You could also ask a friend or family member who has good credit to cosign a loan on your behalf, which means that he or she shares liability for the loan with you.
- You can also apply for a credit card. However, make sure you clearly understand the terms of the card. For example, how long is the initial grace period or the time you have to pay the current balance in full before finance charges are added? Is there an annual fee or other fees that go along with the credit? If you carry a balance, how will finance charges be calculated?
- If you have difficulty being approved for a major credit card, you may want to apply for a "secured credit card". With a secured credit card, you will deposit an initial amount of money with the financial institution to "secure" your card. The amount of money you pay to secure the card will normally determine your "credit limit" for the card. If you make your "secured credit card" payments consistently on time, your initial deposit normally will be returned to you, and your credit limit may even be increased. When applying for a "secured credit card", make sure that the bank will be reporting your account and payment records to the credit bureaus. This is important, as your intention is to demonstrate your good credit habits to the credit bureaus to build up a positive credit history and achieve a positive credit score to benefit you in the future.
- You may also apply for a department store or gas card. These cards are typically easier to obtain than major credit cards. Make sure you clearly understand the terms for these cards, and also make sure that you make your payments on time.
- Credit Patience is a Virtue. No matter which method or methods you use for establishing credit, understand that achieving good credit and maintaining good credit is a lifetime pursuit that can pay big dividends over your entire life. Don't "over-apply" for credit anywhere and everywhere. Keep balances low and under control and make your payments on time. Don't become a "credit captive", forced to spend a years and years paying high interest rates to financial institutions. It's your money, put it to work to secure your financial future!