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No Credit? No Problem. Establishing Credit

No Credit? No Problem. Establishing Credit

 

          When you don’t have a credit history, it can be difficult and frustrating when trying to obtain a credit card or other type of loan. Establishing your initial credit history can be a Catch-22. If you don’t have credit, not many places are willing to give you credit, yet how can you ever establish credit if nobody is willing to extend any to you?

          There are a few things you can do that can help in your quest for establishing credit. The first thing you should do is open and maintain a checking and possibly even a savings account at a local financial institution. This is helpful in two ways: When you have active financial accounts in good standing, you are proving that you can manage money. While financial accounts aren’t typically a part of your credit score, lenders can use this information to determine whether or not you are a credit risk.

          Establishing a relationship with a financial institution will also improve your chances in obtaining a loan or credit card through them.

          Another important factor lenders look at is your employment history. Lender wish to see if you are able to hold a job or if there are periods of unemployment. Your ability to hold a steady job can improve the likelihood of getting approved.

          Lenders will also look to see how often you move and whether you rent or own. As with employment history, it pays to have a stable residence. Owning a home carries some weight as well.

          Even without a credit history, it is possible to sign up for many utilities in your own name. Having an electric or gas bill, telephone, cable, or water service in your name also helps.

          You’ve probably been shopping at the mall and been asked if you’d like to sign up for their store credit card to save 10% on your purchase, but politely declined. Generally, store cards are a bad idea because they lure you in with that up-front discount, and then the ongoing interest rate is very high.

Avoiding these cards is typically a good idea, but the ease in obtaining one may actually be a good thing if you’re having trouble establishing credit

          Secured credit is a last resort.  When a credit card or loan is secured, it means that there is an asset linked to the account that the lender can take if you fail to make payments.  For example, you could obtain a secured credit card with a $500 limit if you put a $500 deposit in the bank that is linked to the card. If you fail to make your credit card payments, the bank takes your deposit.

 

          Establishing a good credit history takes time. There are no shortcuts or tricks that can take you from no credit at all to a high score in a matter of months or even a few years. Your credit score is based on a number of factors such as payment history, length of time you’ve had credit, and much more. So, while it is important to initially establish credit, it is even more important to take the time to do the right things to maintain good credit

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