Need Help Establishing Credit?

Wouldn’t it be great if you could snap your fingers and you instantly had a solid credit history? The reality is that it takes time and effort to establish credit. But once you have good credit, it can open doors financially for you. Having good credit can mean the difference between getting approved or denied for a mortgage or car loan. And the stronger your credit, the greater your chances of getting favorable terms and interest rates on loans and credit cards.need-help-establishing-credit

But building credit can be a bit of a catch 22. A lot of credit card companies and lenders won’t grant you credit unless you have a proven track record of handling credit responsibly. This can make it a bit challenging for those who haven’t established a credit history yet.

Luckily, there are many ways to establish a foundation of credit to build upon. Here are some credit building tips you can use:

Take out a credit-builder loan. With this type of loan, the lender places the money being “borrowed” into a savings account on your behalf. You then pay off the loan through a series of monthly payments. Once the loan is paid in full, you gain access to the money in the savings account. Credit-builder loans are usually for relatively small amounts of money, making it easier to meet your monthly loan payments. The lender reports your payment history on the loan to the three national credit reporting agencies, so as long as you make your monthly payments on time, you’ll be building a positive track record on your credit report. These types of loans can be a bit hard to find, but a good place to look for one would be at a smaller financial institution, like a community bank or credit union.

Obtain a secured credit card. These types of credit cards are intended specifically for people with little or no credit. When you take out a secured credit card, you pay a deposit to the financial institution who then grants you a credit limit, which is usually equal to the amount of your deposit. Once the account is opened, the card works just like any other credit card. The only difference is that the financial institution has your deposit as a guarantee on the credit line. In other words, if you don’t make your payments, they will take the money out of your deposit. Like a credit-builder loan, the payments you make with a secured credit card are reported to the credit bureaus, helping you to build up a solid credit history if you make them on time. The point of a secured credit card is to build your credit to the point where you can qualify for an unsecured card — one that doesn’t require a cash deposit and has better benefits.

Look into opening a store credit card. Many popular retailers offer their own, private credit cards. While these cards can typically only be used to purchase items from the store issuing them, a plus side is that they usually have more flexible underwriting standards, meaning they are easier to get than a traditional credit card. These types of credit cards can be good “entry-level” cards, allowing you to build up a credit history before applying for a regular credit card. It’s worth noting however that they do typically have lower credit limits and higher interest rates than non-store credit cards.

Take out a student credit card. Like a store credit card, a student credit card is generally easier to get than a traditional credit card; that is, if you’re a college student. Credit card companies have been known to be pretty aggressive with targeting college students, due to their future earning potential. A college student can typically be approved for a student credit card even if they don’t have any credit, as long as they can show enough income or assets to cover the minimum monthly payments.

Become an authorized user on a credit card. If your parents or someone close to you is willing to do so, you could be made an authorized user on their credit card. An authorized user will typically receive their own card in their own name that they can use to make purchases, but financial responsibility for the account remains with the primary cardholder. So, as long as the primary cardholder makes all of the monthly payments on time, the authorized user will benefit by having the positive payment history reflected on their credit report as well. Just keep in mind that being an authorized user works both ways. In other words, if the primary cardholder is irresponsible with the card and fails to make payments on time, your credit could suffer as the authorized user. For this reason, it’s important to only be an authorized user if you completely trust the primary cardholder. You should review your credit report regularly to ensure payments on the account are being made, and if you find your credit is being damaged by the relationship, you should remove yourself as an authorized user.

Co-sign on a loan. It’s generally pretty difficult to obtain a traditional loan without a solid credit history, as lenders are hesitant to extend credit to individuals who haven’t demonstrated they can pay the loan back. However, if you co-sign for the loan with someone who already has a good credit history, your chances of being approved will be much higher. A co-signer is basically someone who agrees to share financial responsibility for the loan. In other words, if you default on the loan and stop making payments, the lender will go after the co-signer for the money. Both parties are equally responsible for the debt. Because both of your credit reports are on the line, it’s extremely important to only co-sign with someone you have complete confidence in.

Be responsible with student loan payments. No one likes having to pay back student loans, but if you’re fresh out of college with no credit history, you can at least work them to your advantage. Like other types of loans, student loan payments are reported to the credit bureaus, so paying them on time can help you establish a solid credit history. Just be sure not to miss payments, because then they’ll start to damage your credit history. If you find that your student loan payments are so high that you’re having trouble making them, you might want to consider refinancing them to help reduce the monthly payment amount.

No matter which approach you choose, once you have credit in your name the key is to be responsible with it. By making all of your monthly payments on time, every month, you can be well on your way to building a strong credit history for your future.

Check Your Credit Reports Regularly and Thoroughly

Knowing what’s in your credit report is very important. It can help alert you to identity theft before it ruins your credit history, and it can have a significant impact on whether you will be extended credit for a major purchase or for a financial move such as refinancing your mortgage. Credit reports are used by creditors, insurers, and other businesses to evaluate applications for credit. In some cases, they’re even reviewed by potential employers before offering you a job. These credit reports are loaded with information such your bill payment history (including late and missed payments), how much debt you have, and how much credit you have available to you. A positive credit report can mean better interest rates on loans and more favorable consideration from credit card companies.check-your-credit-history-regularly

There are three major credit reporting companies that compile and manage these reports – Experian, TransUnion, and Equifax. Fortunately, under the Fair Credit Reporting Act, you can order your credit report from each of the three credit reporting agencies for free once a year. The nation’s consumer protection agency, the Federal Trade Commission, enforces this law in an effort to promote the accuracy and privacy of the information in your credit reports.

When reviewing your credit reports, it’s important to look closely at all of the information provided to ensure it’s accurate. Incorrect information in your report could have a negative impact on your credit history. For example, if you’ve always paid your mortgage on time, but there are missed or late payments noted, you’ll want to contact the credit reporting agency to have the discrepancies remedied.

Checking your credit reports on a regular basis can also help you to spot identity theft. For example, if you notice addresses on your report that you’ve never lived at, or credit card accounts you’ve never opened, there’s a good chance someone could be fraudulently using your identity, and harming your credit history in the process. If you notice anything suspicious in your report that makes you think your identity has been compromised, contact the credit reporting agency immediately.

It’s important to note that the credit reporting companies don’t share information with each other, so it’s possible for the information in one agency’s report to differ from your reports from the other two agencies. Some people prefer to order their free report from all three reporting agencies at the same time to help identify any inaccuracies across them. Other people choose to stagger their free reports, ordering a free report from one of the three reporting agencies once every four months. This strategy can help you to keep closer tabs on your credit throughout the year.

The only website that is authorized to provide you with your free annual credit reports under the Fair Credit Reporting Act is http://www.annualcreditreport.com. If you’d prefer to order your free reports by phone, you can do so by calling 1-877-322-8228. You can also print out and mail a request form to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You can download the form via this web address: https://www.annualcreditreport.com/manualRequestForm.action.

Once you’ve ordered all three of the free credit reports you’re entitled to annually, you can still order more, but you’ll have to pay for them through the individual credit reporting agencies. However, there are some special circumstances that could entitle you to more than one free credit report from each reporting agency. These situations include having your credit limit reduced, being denied credit, or becoming a victim of identity theft.

No matter what your situation, staying on top of your credit history is a sound and smart way to keep track of your financial health.