"How do I establish credit, when I don't have a credit-history"? This is
probably the most commonly asked question by most consumers looking to open a
credit account. Not having credit can be just as hard as having bad credit
unless you know how to go about proving yourself to a potential creditor.
The crazy catch twenty-two:
How can you get credit if nobody is willing to extend you credit because you
don't have any credit-history?
A good place to start is by obtaining a letter of credit from a company that you
have been dealing with already that does not report to the credit-reporting
An example would be your electric company. It is possible to contact your
electric company and request a letter of credit. They are likely to require that
you have had an account with them for at least a year as with most companies
that you are asking for a letter of credit. Your cable company may be another
option for a letter of recommendation for credit. If you have had an open
account for at least a year and have made on time monthly full payments, without
payment arrangements, these two companies are good candidates to provide you
with a letter of recommendation for credit.
To establish credit either with or without a letter of recommendation for
credit, you could also start with your banking institution. All banks offer
credit-card and loan accounts. If you have banked with the institution for at
least a year (sometimes 6 months) they may strongly consider extending you a
line of credit. In the beginning of any credit account, your interest rate may
be high, but don't despair, after your first positive review in about 6 months,
the interest rate may fall dramatically as well as your payments if you have
been making minimum payments.
Just to get you started. Your new account may be very low. After about 6 months
of on time payments, your lender may review your account for a larger credit
line. The smartest technique is to start with baby steps. Start with just a
small account, pay the accounts regularly, get used to the monthly obligation,
and make on time monthly payments before jumping into any other credit
account(s). You are very likely going to find creditors coming out of the wood
work and hunting you down to offer you a line of credit, consider their offers
with caution. Actually, the best recommendation is to give your self at least 6
months to a year before taking on a new account. Jumping in too fast can easily
wipe out all of the hard work you have done so far to establish some credit.
Once you jump on the credit bandwagon, it is vital that you keep track of your
own credit rating. You will find innumerable great offers online for programs that can
inform you, on a regular basis, of your credit standings. You could also request
your free annual credit-report and verify your status regularly.
Once your credit becomes active, keeping track of your credit-report is crucial
for innumerable reasons:
It could prevent the use of a fraudulent credit account by an unknown user.
It could prevent the unfortunate event of somebody stealing your identity and
using your credit.
It could help find a lost payment and assist you with keeping track of how your
creditor is reporting your payment activity.
It is just good credit etiquette to know your own credit rating.
Knowing your own credit rating and status gives you bartering power when dealing
with a new potential creditor.
Once you've established some credit, take caution with accepting credit offers
from other creditors, look into the interest rate the lenders are offering,
consider the monthly obligation in addition to your other financial
responsibilities such as rent, utility bills, car insurance, groceries, laundry
expenses, gas, day care, etc., and feel free to decline credit offers.
In the beginning of your adventure with new credit accounts, it can be very
exciting to have multiple creditors offering advances, it can be an uplifting and
powerful event, however, pursue with caution in order to maintain a healthy
credit rating and score. Keep your credit-history in mind and respect the great
task that you have accomplished by establishing credit with caution.