Getting Started With Credit

Having credit is a very important part of living in today’s society. The amount of credit you have represents how trustworthy and responsible you are when it comes to money. Your credit is measured using a credit score. Your credit score is checked every time you apply for a credit card, mortgage, buy a car or even apply to get your phone line installed. Checking your credit score is becoming more and more prevalent, because lenders and organizations are becoming more careful about whom they can trust giving credit to.

Your credit is dependent on the items listed below:

• Payment History – how often you pay your bills on time
• Debt Level – the amount of debt you have compared to the amount of credit you have, less debt to credit ratio, the better
• Length of Credit History – the longer the better
• Inquires – the amount of time you applied for credit within the year, the greater the number, the more likely you are having financial trouble
• Mix of Credit – the amount of different accounts you have show you can manage credit, the more the merrier

Getting started with credit is difficult and overwhelming if you make mistakes by not starting in the right place. But in reality obtaining credit is very simple and we will show you exactly how easy it is. The following is your guide to starting your credit, which will cover all the points listed above.

Step One: Know What the Bureaus Know

The three main credit reporting bureaus, Equifax, Experian, and TransUnion are the companies which everyone turns to in order to find information about you. The bureaus’ jobs include gathering credit information about you and then sharing it with companies and organizations that request it. Therefore, it is very important that the information they report about you is correct. There are many ways to check your credit report. We recommend using the Identity Guard service, which also has great features that will benefit you in the long run. For other options, please refer to our credit score page.

When checking your credit report, make sure that all the information is correct, including your personal information and any pre-existing accounts that you may have opened. If your information is incorrect in any way, it is vital that you resolve this before moving on.

Step Two: Open Banking Accounts

One of the easier and often over looked means for starting to build your credit is opening savings and checking accounts. This is a great way to demonstrate your responsibility and stability. In addition these accounts will become handy in your future.

You can also apply for savings and checking accounts before you are 18 years old (the age required to apply for a credit card). If you are turned down trying to open a bank account, you can always try other banks or open a joint account with a trusted person.

Opening bank accounts are typically free these days, so look to see if the bank is going to charge you fees. Fees will probably be charged if you use your account irresponsibly, such as withdrawing money that is not there. If you keep your accounts in good standing, your credit will reflect it.

Step Three: Use Someone Else’s Good Credit to Make Yours Look Good

Using someone else to make you look good is a classic. This doesn’t harm the other person if you do it right and it will definitely help you. This is the fastest way to build your credit! The way this works is that you are either added as a joint cardholder on another person’s credit card or you have a co-signer on a loan.

As a joint cardholder, you get the same credit history for that credit card as the other person. This is great if the other person has great credit history and you both use the card responsibly. But it is risky if you or the other person does not. Remember, you are both sharing the same credit history for that credit card. It is best to create a joint credit card account with someone where there is mutual trust, like with a parent or relative. The idea is that you use a person who already has good credit so that good credit will be shared with you.

Taking out a loan with a co-signer lets you qualify for loans that you probably would not be able to obtain without a co-signer. When someone becomes your co-signer for a loan they are promising on their good credit that the loan will be repaid in the proper timely manner, but it is still your responsibility to pay the loan. Having a co-signer get you the loan, it is your responsibility to make sure it gets paid properly. If you do not make your payments like you should, this will hurt your credit and your co-signer’s credit.

Step Four: Apply for a Credit Card

Applying for a credit card is what everyone normally has in mind when it comes to building credit. Start off with one credit card and use it responsibly. Do not charge more than 30% of your credit limit. This makes it easier for you to pay your credit card bill. When paying your bill, always make it a habit of paying your entire balance on or before the due date. If you cannot, then at least make sure you pay the minimum amount that is specified. You do not have to pay interest on a credit card for you to build credit. Keeping yourself out of debt is a part of having good credit. In order to build credit you have to prove that you can use credit wisely.

There are a number of different credit cards to choose from when applying for your first credit card. When applying for credit card do not apply to too many because every time you make an inquiry, it is marked on your credit report and lowers your credit score. There is a perfect credit card for everyone. Use our credit card finder to assist you. Here are the types you should know about.

Secured Credit Cards
Secured credit cards are for people with bad credit or no credit at all. Secured credit cards require collateral. Typically you must deposit money into an account to prove that you can pay your balance before using the card. You can also use items such as a house, car or stocks, to show you are capable of paying. The amount of credit on the credit cards normally corresponds to the amount of collateral you put up. Secured credit cards are great if you want to build your credit!

Unsecured Credit Cards
Unlike secured credit cards, unsecured credit cards do not require any account deposits to use the card. To obtain an unsecure credit card a credit check and approval is often required. It is more difficult to increase the credit limit on unsecure credit cards compared to secure credit cards. However, benefits include lower interest rates and fees compared to secured credit cards.

Unsecured credit cards will be more difficult for a person who does not have credit to obtain. However, if you are in college you are in luck. Many credit card companies make exceptions for students in college but giving you a student credit card. Student credit cards are tailored to students attending a four year accredited college or university. Because students generally do not have credit, this credit card is intended to help students build credit. Student credit cards have lower credit limits and less benefits and rewards.

Store Credit Cards
Store credit cards from department stores or gas stations, are typically easier to get. They do not have as much impact on your credit, depending on whether the card uses a financial company over a regular bank to handle transitions. Major credit cards such as American Express, Discover, MasterCard and Visa will have a larger impact in helping you build credit, but are more difficult to obtain.

Step Five: Get a Loan

Getting a small loan from a bank increases your mix of credit. A small loan is easier to pay off than a large loan and has a smaller amount of interest. We recommend taking out a small loan after maintaining a credit card for at least a year. In addition, loans can be taken out with a co-signer as mentioned previously.

Final Thought

In order for you to have a credit score, you must have an account open and be actively using the account for a minimum of 6 months. You credit score will improve the longer you are able to maintain good credit. So, make sure you are responsible in your decisions and always make sure that you are able to pay your bills on time. Following these guidelines will lead you to excellent credit!