Establishing credit for the first time may be tricky. If you do not have a credit history, it will be difficult to get a mortgae, credit card, or even a loan. So how do you show a repayment history if you can’t get credit? To have a credit score, you should have an account that has transacted for at least six months. You also need a creditor who reports your activities on the account to credit bureaus. This posts looks at steps that will help you establish credit for the first time.
Get a secured credit card
If you are establishing a credit score from nothing, you should consider a secured credit card. The secured credit card is safe as it is backed by money that you deposit into your account upfront. Your credit limit for this case will always be equivalent to the money you deposit. You can then go ahead and use the credit card just as you would any other to make purchases.
The secured card is not meant for use forever as the account can be closed once you have built enough credit to get an unsecured card.
Get a credit building loan
Just as the name suggests, the credit building loan is used to help you build credit. Typically, the lender holds the money you borrow in an account until you repay. It is perceived as a forced savings program though your payments reflect at credit bureaus. Such loans are mostly offered by community banks and or credit unions and can even be found online.
Get a co-signer
You can apply for a credit card or loan with the help of a co-signer. For this to work, the co-signer should be credit worthy. Both parties should however note that the co-signer is liable for the full amount should you fail to pay back.
Be an authorized user on someone account or credit card
You should get a friend, spouse, or family member to make you an authorized user on their account or card. Being an authorized user allows you to build a credit history without being legally obligated to make payments.
Ensure that the primary cardholder confirms whether the financial institution reports the activities of authorized card holders or account users to credit bureaus. Most institutions report but you should be sure so that your efforts do not go wasted.
Use your rent as credit
You can use rent reporting services that put your bills on the credit report to help you build a history of payments made on time. Not all credit scores put bills into account but some do and you may be lucky to get a loan or card that will firmly put you in the map for better credit history.
Maintain good financial habits
Building a good credit score requires time. You should practice good habits to not only build your credit history but also show you are credit worthy.
- Make all your payments on time including utility bills.
- Keep your card debts low, where possible pay your balances in full every month.
- Do not open too many accounts at the same period.
- Regularly check your credit reports for errors or discrepancies.
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