If you have no credit history you might start thinking of your financial future, what if you will need a mortgage, car loan to get to work or finance for any other expenses in your life. Many people do not know that credit cards can help you establish credit and build up your credit score, provided you are using them the right way and not abusing the use of credit cards.
Here is a step by step guide on how to use credit cards to establish a good credit profile and get accepted for further finance in the future. Just a side note: Many people get tempted by credit cards to spend on them, and that is the reason that leads to bad debts. But they can really be used to build up credit if you keep your goals in mind.
Get a regular or pre-paid secured credit card.
Pre-paid credit cards are very easy to get accepted for, even with no credit history as they do not mean the credit card company is risking anything. So if you cannot get accepted for a regular credit card you can still establish credit with a secured card. Remember to check the deals, you don’t want to end up paying huge monthly fees on the card.
Start using your card
With this step you do have to make sure that you are not spending more than about 30% of the available funds every single month. Also you need to make sure that you are making the payments on time for the credit card company. The best way to handle this is to have a bank account that lets you set up automatic payments. You do not necessarily need to stick to the minimum payments, you can pay off and re-use your credit every month as long as you pay the money back. If you took out a secured credit card it is time to convert it into an unsecured card. Some deals do actually automatically do this after 12-18 months.
Check your credit report
After about 12-18 months of having credit, and making monthly payments you will have a much better chance to get accepted for a lease agreement or personal loan. Especially if you have used additional products to establish your credit history like monthly subscriptions and contracts. Start with small amounts of credit, make about 6-12 repayments before you apply for more finance to keep your credit score under control.