Establishing a Credit History
Good credit is essential. It will help you to purchase items you need, and qualify you for the lowest rates when you cannot pay in full.
But good credit is based upon establishing a good credit history.
To establish credit individually for the first time, use the following tips and practices.
How to establish credit for the first time
Apply for a small amount of credit at a financial institution or even at a department store, but do some research first.
- Ask for a copy of the terms and conditions that apply to the type of credit you are interested in.
Without any established credit, you may be expected to pay a slightly higher interest rate. Shop around. Interest rates, fees, and penalties for late payments can vary greatly.
- Before you apply, ask if the credit grantor regularly reports your bill-paying history to a credit bureau.
Since your intention is to build a positive credit history, avoid lenders who don't report your information to credit bureaus.
- When you get the card or loan, use it.
Consistently pay your bills on time. Each month, your credit grantor will report this information to the credit bureau. In this way, you'll establish a history of responsible credit use.
Then . . .
After six months, consider applying for another card. Continue using your credit and paying your bills on time. Before you know it, you won't have to ask for credit. Credit grantors will come to you. (Be careful, though, not to get carried away. Know your financial limits; keep your use of credit in check.)
If you're turned down for credit, ask the credit grantor for specific reasons. Perhaps your salary is not high enough or you haven't lived at your current address long enough. Time may resolve these matters. Reapply for credit when your situation changes.
A second option . . .
Another option is to ask a close adult relative or friend with an established credit history to cosign your loan or credit card application. If granted, the account will appear on both your and the cosigner's credit reports. Take extra care to repay your cosigned debt promptly. Failure to do so will hurt your cosigner's credit as well as your own. After a few months, try again to get credit on your own.
Yet another option . . .
Yet another option is to apply for a secured credit card. To obtain a secured credit card, you must open and maintain a savings account as security for your card.
Not all lenders report secured card usage to credit bureaus, so be sure to ask if your lender does before you apply for the card. If the lender doesn't report your use of the card, having the card will not help you obtain credit in the future.
But beware of any extra fees!!
Also, beware of the extra fees you may have to pay to obtain secured credit. Secured credit cards typically have higher interest rates than unsecured cards. Annual fees also are common. Use extreme caution before calling a 900 telephone number for a credit card. The call itself can cost up to $50, and there's no guarantee you'll receive the card.
DCU's Secured Visa Credit Card is a great value!
Unlike most secured credit cards on the market, DCU's Secured Visa Credit Card is a great value. You get all of the benefits of DCU's Visa Credit Card as well as dividends on the savings you borrow against. If you have no prior credit history, this is a great way to establish some.
How can I create a positive credit history?
- Pay your bills, on time, regardless.
Most lenders look at the most recent information on a report. So, if you've paid your accounts on time for the last two to three years, the lender may ignore a series of late payments from five years ago.
- Review your credit report 60 to 90 days before making a major purchase (such as a home or car.)
For $8.00 BALANCE, a financial fitness partner with DCU, will get you a copy of your credit report and review it with you. Visit BALANCE or call 888.456.2227 for more information.
In addition, you may also call Experian at 888.397.3742, Trans Union at 800.916.8800, or Equifax at 800.685.1111 for details on how to obtain a copy of your credit report. Let them know if any items on the report are inaccurate. Without charge, they will investigate any information you question as inaccurate and send you the results within 30 days. You may also request a copy of your Personal Credit Report online through these sites:
- Sign up for DCU's Free FICO Credit Card Score Service
Another great way to start learning more about what shape your personal credit is in is by signing up for DCU's FREE FICO Credit Score Service. Check out more information at DCU's Free Monthly FICO Score page
- Set a budget and live within it.
In the age of self-help and empowerment, managing your finances should top your list.