Establishing Your Credit From Scratch

1. Getting your first line of credit:
   One of the best methods of obtaining good credit is by having revolving accounts. Revolving accounts are type of loans that allow the borrower to keep spending as long as they have sufficient balance and continue to make regular payments on the already used balance. Credit card and line of credits are revolving accounts. Without good credit it is hard to obtain a revolving account. I think the best way to do this is by applying for secured credit cards. This means, a financial institution will take a specified amount of money from the borrower and place this in an interest bearing savings account in their name. In return, they will be granted a credit card with the same spending limit as the deposit. The credit card operates just the same as a regular credit card. The only difference is the financial institution has the deposit in case the borrower decides not to make any more payments. Please be ensured that as long as you have been given a secured credit card from a reputable institution your deposit should not be at risk. In order to build your credit it is important that you make all your payments on time. Only payments that are at least thirty days late are usually reported to the major credit bureaus, but be aware of late charges, that will usually be incurred by the financial institution.
2. If you are a college student you may be eligible to receive a ‘student’ credit card. Many financial institutions offer unsecured credit cards to college students, but these cards will usually have higher interest rates as well as lower spending limits. Do not be discouraged by this, as a well managed credit card will only be of good to you in the future. The way to reduce the interest you pay is to make higher payments each month.

What’s next?
1. Ok, so you have your first revolving account, what comes next? Try to follow the same procedure above to receive two or three accounts. Make sure that you pay on time every month. After about six months try applying for other unsecured credit cards. Your credit would still be considered a ‘high risk’ but you would have established some degree of credibility. With a little luck you will receive offers. Never make too many applications as this does not help your credit and will create a red flag to potential lenders. Please remember, establishing credit is a gradual process, it takes time and plenty of it. Repeat this process every three months or so. Another strategy is to keep paying the credit cards you currently have, for a much longer period of time, and apply for other cards when you are ready. The longer you have an account the better it is for your credit. Also, maybe one of the worst things you could ever do is apply for store credit cards at every store you visit. Store credit cards are good at building your credit but it is very tempting to apply for them all, considering that they are usually offered along with a discount on your merchandise. Be wary of the fact that too many revolving accounts will do more harm than good.

These tips should prove very helpful in your search for good credit:

1. Do not make too many applications for credit.
2. Keep making payments on time, all the time-Missing payments hurts.
3. Don’t keep a ‘no balance’ credit card (a credit card with none of the spending limit used) – You
   need your good paying habits to be constantly reported to the credit bureaus.
4. Do not have too may revolving accounts.
5. Try not to use too much of the available balance on your accounts.
6. Do not keep closing out accounts and reopening new ones.
7. Avoid unnecessary debt.
8. Avoid Financial Institutions that charges a fee to report your paying habits to the Credit Bureaus.

If these tips are followed then you are almost guaranteed that your credit ratings will be improved. The next thing you should do is properly discard of any documents with private information such as your name, address, date of birth and social security number. A wise investment is a shredder for your home, as identity theft is very rampant in our society. There are many credit watch programs out there which allows you to check on your credit at all times so you will be aware when any unknown inquiries or accounts are opened in your name. THis all information will help you in Establishing Your Credit From Scratch.