Best Ways to Establish Credit

Those who are about to venture into the world or credit and loans may not find it as easy as they think to get a foothold on the rung. Gone are the days of easy lending to anyone who applied, and lenders are now more wary and exercise more caution when lending to someone unknown. Those who haven’t used credit before are impeded by the simple fact that they have no credit history and thus are an unknown risk. No longer able to piggy back along as a card holder on someone else’s account to establish credit, they must now find ways to establish their own credit reputation.

Young people new to credit are generally required to produce a willing co-signer to obtain either a credit card or a loan. Usually a parent will stand guarantor until a responsible way of handling credit has been established by the youngster. In order to obtain freedom from the need for guarantors and to have credit in your own right it is important to demonstrate sound financial sense. This means always paying the amount due on the due date.

Late or missed payments will not only cost you in fees but will be recorded on your credit report, thus sending your budding credit score straight into decline. Not only that but it will affect the good credit standing of the person who was willing to step in as your co-signer. When using any type of credit card the best practice to begin with and maintain is to always clear the balance in full each month and thus never pay interest. Simply put if you can’t afford to buy something don’t put it on credit, as there leads the slippery slope to debt.

Another way to establish credit is to opt for a secured credit card from a reputable lender who does not impose huge fees for letting you have one. You will need to pay a security deposit equal to the amount of credit advanced, but if you demonstrate good usage with the card you will most likely be able to move onto unsecured credit within the year. Even if you have no need to use the card use it at least once a month and pay the balance off in full in order to establish your credit record. Don’t be tempted to waste your time with pre paid credit cards as they are not in fact credit cards and their usage is rarely reported to the credit bureaus.

People who have always lived by the cash maxim and now wish to obtain credit should consider using the FICO expansion scheme to have their past record of non recorded bills logged with FICO. People who have been paying rent, utilities and other fixed monthly payments on time have proven they can handle finances but may have never utilized loans or credit before. The FICO expansion scheme is a step to help people in this category, establish their credit.

Whichever route you pursue to establish credit your aim should be to create a credit footprint which will reflect your financial reputation, and naturally you need this to be good in order to obtain the many benefits of having a high credit score. Sensible use of credit and loans, and keep your borrowing at an affordable level, will lead to offers of better interest rates once your credit becomes established.