Aug18
How to Establish Credit the Easy Way
No credit history? No problem!
There are a number of ways to begin establishing a credit score so you can enjoy low rates on everything from credit cards to home loans.
If you are starting from scratch, it is probably best to follow these steps:
- Apply for a secured credit card – We like secured credit cards because individuals with no credit or poor credit can use them to establish a strong credit history. Here’s how a secured credit card works: a secured credit card requires a deposit, which is usually equal to your credit limit. In other words, if you accept a secured credit card with a $500 credit limit you will likely be required to hand over a deposit for $500, as well. The deposit is held by the creditor and only used if you fail to pay on your credit card. If you cancel the card or transfer the card into an unsecured card, you will receive your deposit back, in full. Once you begin establishing a history with the secured credit card company they may either reduce your deposit amount or increase your credit limit. Make sure the company you choose reports your monthly payments to the credit reporting agencies. Some secured credit card companies report only quarterly, so it is important to find a creditor who reports on a monthly basis.
- Apply for a retail credit card – Although retail credit cards are do not come highly recommended by financial experts because of their high interest rates and fees, they are much easier to get for individuals with little to no credit. With that said, you may find that a retail credit card is a good tool for establishing credit. Just be careful and pay off your balance in full, each month, as to avoid costly finance charges.
- Apply for a college credit card – If you are a college student, you may be eligible for one of the many college student credit cards. Most of these cards are designed for individuals with little to no credit history, making them ideal for college students. Be careful, however, as these cards often come with high interest rates.