How to Establish Credit
Once, credit cards were only for the privileged few. The rest of us used cash – and when there was no more, we either had to borrow from a friend or family member, or make do till next payday. Today, qualifying for a credit card is easier then before. Establishing a positive credit record, however, requires dedication and patience.
Whether you are new to credit or are trying to "clean up" past mistakes to reestablish a favorable record, you may encounter a frustrating paradox: you must have and use credit to create a credit history, yet many financial institutions are reluctant to extend credit to someone without an established record. But don't despair – there are several good remedies for both situations.
An excellent start is a secured credit card. You are granted a credit line based on a percentage of a cash deposit you make to your financial institution. Because deposits are usually low, so too will be your credit limit. Application and annual fees for secured cards are often higher then those associated with unsecured credit cards.
Consider a local retailer's credit card. Their criteria is often less rigorous then larger credit issuers. Be sure they subscribe to the major credit reporting agencies though – if not, you won't be establishing a credit history.
Another option is having someone with a positive credit record cosign an account for you. This requires a great deal of trust on the part of the cosigner – if you fail to pay, he or she is responsible. You could end up jeopardizing a relationship as well as a credit record.
Finally, if you have damaged credit, you'll need to rectify the past as you're building your future. Pay old debts and correct errors as soon as possible.
Once you have a credit line, establish a good history by using it responsibly. Keep balances low, always pay on time, don't pursue unnecessary credit, and stick with a few good credit instruments of various types.
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