How to Establish Your Credit Score

Having no credit is as bad as having a bad credit rating. When you have no credit, it seems like you're caught in a dilemma. No one will give you credit without referring to your credit rating, and you can't get a credit rating without credit. How do you break out of this circle? Read on for some suggestions on how to establish a credit rating for yourself.

Instructions

Difficulty: Moderate

Things You’ll Need:

• 18 Birthdays in your past
• A social security number
• A job
• A checking and / or savings account
• An address
• A telephone number
• Utility bills in your name
• A bank willing to give you a loan (this can be a credit card)
• Disposable Income (even a little)
• Willpower

1. The first thing you need to do when establishing your credit is be eligible to have credit! You must be 18 years old or older, have a social security number and a permanent mailing address. If any of these qualifications are missing, you won't be able to establish credit in your name.
2. Certain qualifications will work in your favor when starting to establish good credit for yourself. You will obviously need a source of income, and that means you should be employed. It helps if the utilities at your permanent address are in your name. Having a telephone number is always a good thing when you're trying to establish credit.
3. Potential creditors will be looking for stability when evaluating your ability to handle credit. The longer that you've stayed at one job and one address, the better. In fact, if you've moved or changed jobs within the past 6 months, you may be better off to wait until that time period has passed before applying for credit.
4. In addition to an overall sense of stability, creditors like to see indicators of financial stability. Open a checking account at a bank. Make yourself a better candidate for good credit by maintaining a savings account. Be careful not to "bounce" or overdraft any checks. This would make your checking account a liability instead of an asset to your profile! Again, the longer you have held these accounts, the better.
5. Get a copy of your credit report from the 3 main credit reporting bureaus, TransUnion, Equifax and Experian. Wait a minute though, how can you have a credit report if you have no credit? You just want to be sure that you haven't been the victim of identity theft, with someone else establishing bad credit in your name! If you have any problems, contact the Federal Trade Commission to sort things out.
6. Apply for credit! The best type of credit to apply for at first is a secured loan from your bank. This loan will usually require a deposit. The amount of the loan will be equal to the amount of the deposit. It is imperative to make your payments on time. These 'starter' loans are your way to prove that you are credit-worthy. Don't mess it up with a late payment!
7. Your credit-worthiness is improved by having a variety of types of loans in your 'credit portfolio'. Another easy starter loan (in addition to the secured loan mentioned above) is an installment loan. Don't necessarily try to take out a car loan or other large installment loan: your lack of credit will insure you are offered the highest interest rates. Put an item on layaway, such as a mattress, piece of furniture or home electronics. Make your payments regularly, being sure to NEVER be late!
8. Apply for a finance company card. Instead of using a bank, department stores and gasoline companies typically back their revolving credit accounts (credit cards)with a finance company. These types of cards are much easier to get than a major credit card such as a Visa or Mastercard. Only open one or two of these types of credit cards, never make a late payment, and pay your balance in full every month.
9. If possible, get someone with a GOOD credit rating to add you as a user on one of their accounts. Have them ensure that any additional users on their account will be reported to the credit rating companies (they sometimes are not reported). If they do report additional users, the main user's credit will rub off on the additional user. Be careful, this can be a good or bad thing. It is also quite a commitment for the main user of the card. They are vouching that they will take responsibility for any financial actions made by you.
10. If you need a large installment loan (such as a car loan) and have no credit, ask a friend or family-member to 'co-sign' on the loan for you. You will often be approved and granted an interest rate that would've been offered to your loan's co-signer. Again, this can be a good or bad thing. If your co-signer has bad credit, you may still not be approved or be given a high interest rate. If you default on your loan, the co-signer must assume financial responsibility. Like additional users on credit cards, co-signing loans requires alot of trust from both parties involved.

Tips & Warnings

• Keep your credit cards open even if you don't use them. The length of time you've held your cards factors into your score. If you have a few accounts you've had for several years or more, this will improve your score.
• Look for cards with no annual fee. Keeping your cards open, even when not using them, is a good idea. Make sure it won't cost you money to do this.
• Copies of your credit report cost money. Save yourself a few dollars and demand free copies (this is your right) when you've been denied credit from someone.
• Take it slow! Each time you apply for a loan, or even have your credit checked by a landlord or employer, counts as an inquiry. Too many inquiries in too short a time period lowers your credit score.
• Never make a late payment. These mistakes can lower your credit score for up to seven years!
• Many unscrupulous lenders give out secured loans. Be sure yours is from a reputable company (a bank or a credit union).