There are a number of ways in which people can establish credit. Having a credit record is critical for people who want to take out large loans such as home, car, and business loans. By building credit early, people can ensure that they will have a good credit record to draw upon when they need it. Having a lengthy and good credit history can also reduce interest on loans, and make it easier to secure loans with good terms.
For college students, one of the best ways to establish credit is to take out a student loan. Student loans are often secured by the government, so that people without credit can obtain them, and by paying regularly on a student loan, students can lay the groundwork for a good credit history. There are also other ways to build credit for college students and non-college students alike.
One of the first steps should be establishing bank accounts. Although bank accounts do not directly contribute to a credit record, they will be used to assess credit-worthiness, and they can open the door to getting a credit card through the bank. The accounts should be kept in good standing, demonstrating the ability to handle finances responsibly. Getting utility accounts is another way to get credit, as is keeping utility accounts in good standing. Maintaining a good employment record is also an excellent idea.
Once the first steps have been completed, applying for a loan or credit card is the next step in establishing credit. Getting a secured loan with a co-signer for something like furniture can be a great way to improve a credit score. Credit cards are another option. Some banks offer credit cards to customers in good standing, and it is also possible to apply directly to a credit card company. For people who have trouble getting credit cards, a department store card can be a way to establish credit, although the balance should always be paid promptly, as these cards often have very high interest rates. As a last resort, a secured credit card which is linked to an asset is another option for establishing credit.
Some banks offer services to people with no credit history who want to establish credit. These services allow people to take baby steps, like using secured cards or cards with very low lines of credit. It will take longer to build a solid credit history with such programs, but for people who are struggling to obtain first time credit, they can be a good option.
Building credit is a gradual process. It is important to make payments on time to establish credit, and to pay above the minimum whenever possible. A single slip like a missed payment can have long-lasting repercussions on a credit record, so people should be careful in their early years of building credit. There are also some tips which should be remembered when creating credit history to make the history appealing to potential lenders. Maintaining limited numbers of revolving credit accounts like credit cards is a very good idea, as is keeping balances below 50% of the maximum at all times. People should also be careful about applying for credit too often, as each inquiry can bring a credit score down.
Credit can also be damaged by things like failing to pay the rent on time or not paying taxes. It is best to assume that all financial dealings could potentially show up on a credit record, and to make good faith payments and keep on top of financial matters. Finally, obtaining a regular credit report is a very good idea. Credit reports can be used to monitor credit history and status, and specifically to check for the credit score which will be used by lenders to determine credit-worthiness. Routinely checking a credit report is also advised to look for signs of fraudulent activity.