If you are young and you have never had credit, establishing it for the first time can be a real challenge. Having no established credit is as big a handicap as having bad credit when it comes to applying for loans or credit cards. Fortunately, if you have a plan it can be pretty easy to build up credit. Here are six steps you can take:
Get a bank account. This won’t help you establish your credit, but you will be asked for your account information when you are applying for credit. It also is a sign of irresponsibility and immaturity if you don’t even have a bank account. It will also eventually be easier to get a credit card from a bank if you have been banking there.
Get a credit card. This sounds harder than it is. You likely will not be able to get a Visa, Mastercard or American Express right away, but that doesn’t mean you can’t get a credit card. Lots of department stores and gas stations offer credit cards. They are often much easier to get than a major card. Check out the requirements for the card before you apply and apply for the ones you will likely get. Once you get one, use it to build up your credit. Just make sure that the card provider reports to a credit bureau or your effort will be wasted.
Use you new card. Once you have the card you want to use it as responsibly as you can. You want to build up a history. Use the card to make purchases. Pay those purchases off before they come due. If you use it responsibly, you will build up a good history quickly. In just a few months you will have a history and you may be able to apply for a major card.
Have a plan. Before you start using a card, you want to make sure that you can use it successfully. Make a plan of how you are going to use your card, what kind of purchases you will make with it and how you will pay it off. Once you have the plan you need to stick to it.
Secured cards might work. A secured card is a regular credit card, except you have to deposit an amount of money in advance. That means you don’t really have a credit limit. Instead, you have just pre-paid your account. Obviously, this is much easier to qualify for than a regular card. It can still be used to build your credit and it provides the freedom of a card as well.
Why did they say no? If you apply for credit and are rejected, always take the time to find out why. They will often tell you why. Use this information to solve the problem and improve your chances next time you apply. Applying and being denied several times can damage your credit report. Identify the problems and solve them to improve your chances.