How Do I Begin To Establish
a Credit History?
How to Build a Positive Credit History
If you are just starting out and are applying for credit for the first time, don’t be surprised if potential creditors are a bit reluctant to approve your application. Young people just beginning their careers, as well as older people who have never used credit before, face the same problem.
Since you have no reported credit history, creditors have no way of evaluating whether or not you are a good credit risk. But once you have a history of timely credit payments, additional credit will be easier to obtain. Here’s how to lay the foundation and build a positive credit history.
INDIVIDUAL CREDIT
To establish credit individually for the first time, start small.
- Apply for a credit card with a small credit limit from a local department store or local lending institution. Alternatively, you might borrow a small amount from your local credit union or the bank where you have checking and savings accounts.
Important: Choose a company that regularly reports your bill-paying history to a credit reporting agency. Ask if they do so and, if not, choose another establishment.
- When you get the card or loan, use it.
- Consistently pay your bills on time.
- Wait six months to apply for credit.
You’re on your way to establishing a positive credit history.
IF YOUR CREDIT APPLICATION IS TURNED DOWN, ASK WHY
There may be reasons other than lack of credit history, such as not enough time at your current address or job, or not enough income. Reapply for credit when your situation changes or apply to another creditor.
Important: If you have been rejected for credit, wait at least six months before submitting a new application.
CO-SIGNED LOANS
It might be easier for you to obtain credit if you have a parent, family member or friend with an established credit history co-sign your loan or credit card application. Your co-signer is promising to repay your debt if you don’t. The account, if granted, will appear on both your credit report and the co-signer’s report. Once you have repaid the debt, try again to obtain credit on your own.
SECURED CREDIT CARD
To obtain a secured credit card, you must open and maintain a savings account as security for your line of credit.
Important: Be sure your lender reports secured credit card usage to credit reporting agencies before you apply for the card. If your lender does not do so, you will not be building the positive credit history that will help you obtain credit in the future.
Your credit line is a percentage of your deposit.
- These cards may charge higher interest rates than unsecured cards.
- You may have to pay an annual fee for a secured credit card
PRIOR CREDIT HISTORY
- Review your credit report. If you had credit previously under a different name or in a different location and it is not reported in your file, ask the credit reporting agencies to include it.
- If you shared accounts with a former spouse, ask the credit reporting agencies to list these accounts under your name as well.
- If you presently share in the use of a credit account with your spouse, ask the creditor to report it separately under both names.