Establishing a good credit history
is one of the most important things you can do for
yourself financially. If you’ve never held
a credit card in your own name, it can be one of
the easiest ways to begin establishing a credit
history for yourself.
The general advice is for you to take out a credit
card in your own name, make small purchases on it
on a monthly basis and make payments on it on time
each month. That’s the best advice –
but what if you’re turned down for a credit
card because you have no credit history?
Here are some suggestions to help you establish
your credit history that goes beyond the ‘basics’.
Start with a store credit card.
Store credit cards generally have lower credit
limits and are much easier to obtain than one of
the major credit cards, but they will establish
you as a responsible bill payer if you use them
appropriately. Apply for credit at a store where
you shop often, and make purchases that you can
pay off within one or two months. Make your payments
on time for 6 months or so, then reapply for a major
credit card.
Ask a parent or spouse with a good credit
rating to open a joint credit account with you on
it.
When lenders look at applicants for a joint account,
they take the credit history of both users into
account. If your partner or parent has good credit,
then you’re likely to be issued the card.
The timely payments will go on your credit history
as well as theirs and begin to establish your credit.
In 6 months, you should have built up enough credit
to apply for a credit card in your own name.
Ask a parent or spouse to add you as an
authorized user to one of their credit accounts.
Often, credit card companies report payments to
credit reporting agencies in the names of all authorized
users on a credit card, even though they are not
the one responsible for paying the bill.
Use a secured credit card to establish
your credit.
A secured credit card is one in which you make
a ‘security deposit’ with the issuing
company equal to anywhere from 50% - 150% of your
desired credit limit. They hold that money in case
you don’t make payments to your account. While
it ties up your money, it will establish your credit
as long as you make your payments on time. Once
you’ve established yourself as a responsible
bill payer, you may have the option to convert your
secured card to a non-secured card, or can apply
for a non-secured card and close your secured account.
Be aware that there is a difference between a secured
credit card and a stored value credit card. The
latter is one in which you ‘charge’
a card with a payment of $25-$2000 of your own money,
and can use the card to access your money. It’s
a convenience in many cases, but it’s not
credit and won’t establish credit for you.
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