It can be difficult to obtain a loan or credit card if you haven’t established credit yet. It can be a frustrating catch-22. If you don’t have credit, you can’t get credit, yet how can you ever establish credit if nobody is willing to give you any? Lenders don’t have the normal things to look at, like your payment history or FICO score, when deciding whether or not to give you credit. In these situations they have to look at other factors to decide if you are a credit risk or not.
There are a few things you can do that may help you establish credit. The first thing you should do is open and maintain a checking and savings account at a local bank. Unfortunately your checking and savings accounts don’t get reported to the credit bureaus. If you already do business with a bank and have active accounts in good standing, they should be the first place you go to look for a credit card or loan. They know you and they value your business. This existing relationship may carry some weight. A few other things will keep you in good standing with your bank:
If your living situation warrants, set up utilities in your name. Your payment habits are part of your credit history. Paying promptly and fully reflects well on your credit history. It may also save you from having to have a deposit down the road. Be careful with roommates – if the utility is in your name, you are still ultimately responsible for the entire bill. Credit reporting bureaus keep track of payments that are 30, 60, 90, and 120 days late.
Generally, gasoline or department store credit is a bad idea because of the higher interest rate cardholders seem to pay. If you are having trouble establishing credit, they may be a good thing. These types of credit cards are usually easier to get and offer lower credit limits. If you are approved for a card, you need to practice self-discipline and use it properly. This is not free money. Use it only as a means to establish good credit. Make an initial purchase and pay it off in full. Maintain a good payment history while your activity is reported to the credit bureaus.
If you are still having a difficult time establishing credit, you may want to try secured credit. When a credit card or loan is secured, it means there is an asset linked to the account. The lender can confiscate this asset if you fail to make payments. For example, if you don’t make your car payments, they can take your car to satisfy your debt. You can also establish a secured credit card. You deposit money in an account to secure the card. For example, if your credit card has a $500 limit, this means you made a $500 deposit linked to the card. If you don’t make your credit card payments, the bank takes your deposit. After you maintain the account in good standing for a while, you may be able to obtain a regular credit card or loan.
Establishing credit while you are still in college is a good idea. A good credit rating can make it easier to get an apartment, a car, even a job. You should check out your credit rating before graduating. A fairly new credit law says that everyone is entitled to one free copy of his or her credit report each year. If you have been denied credit, you also have the right to a free report.
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