Getting Credit For The First Time
Your ability to obtain credit ultimately depends on how lenders score your credit rating. As most young people who do not have credit can testify, getting credit for the first time can be a challenge. Before applying for credit of any kind a work history needs to be established. Creditors want to know that you have the ability to repay. Holding the same job for a year is a good starting point, this creates an impression of job stability. If you this is your first time you try to obtain a credit, there are several ways that you can use to get your first credit.
Secured Credit Cards
A secured credit card is a card that an issuing bank gives you only after you have put a deposit down on the card for a certain amount. Here is how it works. When you are accepted for a secured credit card, you give the issuer a deposit that the bank holds as collateral as long as you hold your card. Often the amount of the deposit is the amount of credit you are granted. So if you give them $1,000, you get a $1,000 credit line. The issuing bank will report your good payment behavior to the credit bureaus, and you will be on your way to establish a credit history.
It is important to get secured credit card from a bank that reports to credit bureaus in the same way as a regular, unsecured credit card. Credit grantors can see secured cards as a negative on your credit report because they are not only used to establish credit for the first time but also to re-establish it after credit has been taken away for poor repayment.
Personal Secured Loans
Another way to start building credit is to open a personal secured loan. You open a CD or savings account at your bank, depositing as much as you can afford over the bank’s minimum deposit requirement. After you have deposited the money, ask the bank for a loan against it. Your deposit acts as collateral to guarantee you loan. You don’t have access to your deposit during the time of the loan. So make sure that your deposit is money that you can afford to live without for a time. Be prepared to pay a higher interest rate than those ho have established good credit already. If you have no credit history at all, you represent a risk to your lender and will probably end up paying between 8 to 12 percent on the loan. But the small amount of extra money it will cost you can ultimately help you establish credit.
Find a Consigner or Guarantor
If you can't get a credit card or loan by yourself, or don’t want to take out a personal secured loan, another option is to ask a relative or friend to consign a loan or serve as guarantor. A cosigner is someone who applies for credit with you and will take responsibility for the debt if you default in your payment. Usually, the account is reported to the credit bureaus in both the cosigner’s and your names. So, if you don’t make the payments, it will show up on both credit reports.
Authorized Credit Card Use
For people that already established a good credit history, bank will normally offer them the option of placing additional authorized users on the account and issuing an extra card (sub card) in the added user’s name. Hence, you may ask a friend or relative your trust for help in establishing a history by asking them to become his authorized user of his credit card he already owned. When you name is on the account, the on-time payment information will be added to your credit file.
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