Best way to establish credit for the first time

Best way to establish credit for the first time

Ever wondered how do you get a car loan, or an apartment lease? You show the money lender or landlord that you are good at paying money in due time and you have a previous history of paying your bills, charges and instalments in time. And that history is basically your credit score.

But to have a credit history, you need a credit card. And to sign up for a credit card, you need a credit history. This is the ultimate catch 22 situation. But have no worries. There are ways to establish a credit as a first timer. If you are worried about establishing a credit for the first time, this article is just for you.

In this article, we are going to discuss specific steps that you can take in order to establish your credit for the first time. Let’s get started.

1. Be an authorized user of another person’s card

If you are an authorized user of someone’s card, you can use that card legally, and your usage gets reported to the credit bureau. This way, you can get a head start in building your credit.

So, talk to your family members or people close to you and discuss if they can make you an authorized user for their credit card. Also, be sure to contact with the card issuer to check if they are going to report your usage history to the credit bureau.

2. Apply for a secured credit card

A secured credit card is a good way to build your credit. In these types of cards, you have to pay a certain amount of money upfront as a security deposit. And if, for some reason, you are unable to pay your secured credit card bills, the safety deposit you paid earlier is used to clear the bill.

So, the security deposit works as a safety net. You can even get the unused safety deposit money back if you choose to close the account.

3. Apply for a credit builder loan

As the name suggests, a credit builder loan is a specially designed loan, whose sole purpose is to help people build a credit. In this loan system, the lender generally doesn’t give you the money right away.

Instead, it is kept in an account and isn’t given to you until the loan is paid in full. This is a good way to build credit as the payments are reported to the credit bureau, and also a forced way of saving money.

4. Apply for a loan with a co-signer

Banks generally won’t want to give you loans if they don’t find any credit history. But if they see a person with good credits as a co-signer with you in the loan, they are likely to grant you the loan.

What is a co-signer you might ask? A co-signer is a person who agrees to pay for the loan if the main loan taker is unable to pay the loan. So, if a person with a good credit agrees to be a co-signer for a loan, it gives the bank a security to grant you the loan.

So, at first, discuss with your family members and close ones (the ones with good credit score obviously) and see if they agree to be a co-signer for a loan. Then contact the bank about it.

Be careful about the fact that a loan with a co-signer can be tricky, as if you don’t pay, your co-signer will be legally obliged to pay, which may put bad impression in his credit and may break your relation. So, many relations have been broken because of it.

Other than that, this is a good way of establishing the credit as your payment history gets reported to the credit bureau.

5. Use the rents you pay to build credit

There are some services like rental karma, rent reporters and Rent Track etc., called rent reporting services who take the bills that you are already paying, like your house rent and report it to the credit bureau.

You should consider the fact that all lenders don’t count these reports, but some lenders do. And that might even help you to get a credit card.

These ways will help you to get your credit card and get a jump start to establish a good credit. No consider the following tips to maintain that good credit.

  1. Don’t treat your card as free money. Only use the money that you can repay fully in the end of the month.
  2. Be sure to fully pay your charges in the end of the month. If you keep paying the minimum amount every month, or every other month, you will have a big amount of debt with high interest, which will not only affect your credit, but your whole financial situation.

Follow the above tips, and you will be good to go.

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