Thursday, November 15, 2007
Building A Good Credit History
Building a good credit history can be a difficult task when you don't already have any credit. The vast majority of lenders do like to see a credit history before they will extend credit. This means that if you don't already have a credit history, most lenders will turn you down! So how can you build credit if no one will give you credit?
The most common way is by starting with a secured credit card. A secured credit card is a bit like a checking account. You put money into the account, and you have that amount available to use. The major difference is that this secured credit card will usually report your payments to the major credit bureaus, building your credit history. These also have the potential to convert to an unsecured card after you've made your payments on time for a while.
There are also unsecured credit cards available for people with no credit history. Most of the time, these are bad deals for consumers. They typically charge very high interest rates, and extremely high fees that may be equal almost to the total credit limit offered, which means that you will end up paying a few hundred dollars into the card with nothing to show for it. With a secured card, you should typically be able to use most or all of the credit limit immediately. This is not so with most unsecured starter cards.
Another way to build credit is through a secured loan. When you get a secured loan, you will need some sort of collateral to offer the bank. If you own something like a piece of land or a car, you can offer that item as collateral in order to get a loan from a bank. If you are doing this only to establish credit, and you don't actually need the money, be certain to ask if the loan will report to all three of the major credit bureaus.
And of course you can also get a loan for various purposes by having a more credit-worthy person cosign on the loan for you. What this means is that while the loan will actually be in your name and will usually report to your credit reports, if you do not pay, the person who cosigned the loan with you will be responsible for paying for the loan. If they refuse to pay, the loan will report the missed payments to the cosigner's credit reports. If you have someone who is willing to cosign for you, this is a good way to get started building credit. Car loans and mortgages are two types of loans that commonly have cosigners.
So you see, it is possible to build credit starting from scratch. Everyone has to start somewhere, and there are plenty of avenues available to start building a good credit history.
The most common way is by starting with a secured credit card. A secured credit card is a bit like a checking account. You put money into the account, and you have that amount available to use. The major difference is that this secured credit card will usually report your payments to the major credit bureaus, building your credit history. These also have the potential to convert to an unsecured card after you've made your payments on time for a while.
There are also unsecured credit cards available for people with no credit history. Most of the time, these are bad deals for consumers. They typically charge very high interest rates, and extremely high fees that may be equal almost to the total credit limit offered, which means that you will end up paying a few hundred dollars into the card with nothing to show for it. With a secured card, you should typically be able to use most or all of the credit limit immediately. This is not so with most unsecured starter cards.
Another way to build credit is through a secured loan. When you get a secured loan, you will need some sort of collateral to offer the bank. If you own something like a piece of land or a car, you can offer that item as collateral in order to get a loan from a bank. If you are doing this only to establish credit, and you don't actually need the money, be certain to ask if the loan will report to all three of the major credit bureaus.
And of course you can also get a loan for various purposes by having a more credit-worthy person cosign on the loan for you. What this means is that while the loan will actually be in your name and will usually report to your credit reports, if you do not pay, the person who cosigned the loan with you will be responsible for paying for the loan. If they refuse to pay, the loan will report the missed payments to the cosigner's credit reports. If you have someone who is willing to cosign for you, this is a good way to get started building credit. Car loans and mortgages are two types of loans that commonly have cosigners.
So you see, it is possible to build credit starting from scratch. Everyone has to start somewhere, and there are plenty of avenues available to start building a good credit history.
