Establish New Credit

Once upon a time the task to establish new credit was a relatively easy thing to do.

You opened a bank account and after establishing a bit of a relationship you could apply for a credit card and many times (this is in the early 80"s) the bank themselves issued you a major credit card.

My first credit card was a master card.

Those days are gone now. We have endured, barely, and many are struggling with a great financial crisis that rivaled the great depression. It will be spoken of just in the same manner as any great event for years to come, change our life and how we handle our money.


It sent shock waves to the rest of the world and markets in almost every country are having trouble or are affected by this. To establish new credit now is a bit more of an undertaking as creditors have taken a 180 turn and tightened the requirements for lending.


The game, the rules, AND THE WAY the game is played has changed. Mostly for the creditors but not so for the informed consumer that exercises control over their finances. AND THAT is the lesson one must learn before attempting to establish new credit.


A Good Start


Learning to live on cash for a period of time (if you are young and new to credit or working toward it otherwise) is a good way to strengthen the control needed to use credit wisely.


Many can tell the story of obtaining large credit limits and foolishly abusing it when they were younger only to destroy their credit (for a time) and learn the hard lesson of "having" to live on cash till they corrected the situation.


Instead of learning this the hard way it should be the first step in establishing new credit. Really Cash IS King. Remember that!!!

If you walk into a dealership to buy a car, CASH will get you more negotiating power.

Credit can help them get more sales, but a chunk of cash in hand that day is certainly more attractive when there are bills to pay and sales haven't been good.



The Next Step in Establishing New Credit


Of course while you are looking to begin your credit history you will need to put that cash somewhere besides your pocket. So building a relationship with a local bank is the next step to establish new credit. Most are suggesting credit unions as I do also.


Credit Unions are operated and owned by their members. They are considered non-profit cooperative institutions. Though they do need to make enough money to be stable. When you open an account you become a member. As in any bank the money members deposit becomes pooled and used as an opportunity to provide loans and services for other members.


The difference with a credit union is that the focus is not so much on profit as it is to offer services with lower or less fees and accounts with higher rates of interest. So shop around. Even among credit unions there can be a sizable difference in variety.


When you open an account you may not be looking for anything special. Yet once you accumulate some money in that account you will want options for getting a good interest rate. Every little bit helps.

Depending upon your situation you may only be able to open a savings account at first.


Though it won't add anything to your credit report the goal in the beginning is to make regular deposits each week. This will show stability on your part and a pattern for lenders to look at when you want to establish new credit. Many times that bank is your first lender


This will also establish a good pattern for life. Any financial adviser will encourage you to set up an emergency account for life's eventual bumps that ARE inevitable.


In time adding a checking account and a debit card attached to that account are again not adding to your credit report but will add to your "story of how John or Mary handles their money". Keeping this all in good standing will certainly help when you do apply for credit.



Credit You May Not of Realized You Have



Your first true credit accounts can come from many sources and sometimes you may have one in place that you weren't even aware of.

    the cell phone
    student loans
    or perhaps you've already started a small car loan



If you are living on your own or with roommates that electric bill that you put your name on is another area of regular payments that lenders may look at. It won't be on your credit report if you pay as scheduled but if you are behind or certainly if you are in collections THEN it will be on your report.


If any of these are in disarray, you certainly want to clean them up before you attempt any more applications for credit.


Establishing The Credit



One of the easiest ways to establish new credit is from a loan from that you apply for at the credit union that you are a member of.
You can first try for an unsecured one, but if they are not willing just yet to authorize this, then a secured loan will be your next option.

The secured one is usually secured from your savings account and the balance of the account or some portion of it is what can be loaned to you. Though when you are applying for an auto loan, the auto itself is the item that secures the loan.

If you don't stay current with the payments the vehicle is usually repossessed.

Gas and retail store cards are usually easier to receive than major credit cards. Many times they have smaller limits at first until you have gained that establishments confidence and experience with handling it properly.

Another option is a secured major credit card (usually has a small limit). This is with a bank that regularly offers major credit cards not necessarily the one you regularly deal with. These cards are designed with those with a light credit file or not so stellar credit in mind. The free credit monitoring sites such as Credit Karma regularly offer these sorts of  cards.

Interest may be higher and an annual fee may apply along with the need to open with usually at least $200.00 security. These are usually for the very young or if you have already tarnished your credit.

If you do not have any marks against you they will just start you off with a low credit balance on an unsecured card.

Depending on which way you were able to start your credit establishing, your payments need to be timely and if possible paid in full each month to achieve the best credit rating.

Reading how calculating your credit score can help you see what lenders look at in assigning a credit score to you and what is important to establish new credit.

This way a secured credit card account may be made into an unsecured one, a credit account with a store, maintained well can lead to an approval for a limit increase.

These kind of maneuverings can lead you to the point of readiness for the next step to establish new credit.

Once you've had any of these accounts for at least 6 months or more preferably a year, kept in good standing, you now may be ready to apply for the unsecured major credit card.



Other Considerations when Establishing New Credit


Other things to consider especially in the early portion of your establish new credit pursuit are your employment history and your residential history. If either of these things show constant change (especially employment) again it will show a stability problem. Something to give thought to!!  Unless each change resulted in more money and or a more upscale residence.


There are many among the view that credit should not cost you a penny! Many of those that maintain a credit score at 800 or above are of this crowd.


If you pay in full when you get the bill you will never pay an interest fee. This is where learning that cash lifestyle first pays off as you are already groomed for this.


Above all remember that credit is a tool and can be a useful tool as good credit can get you lower rates and waive fees that others pay because of their lack of responsibility towards credit.


Like those with lack of responsibility, if you do not handle it well it can lead to much trouble.

Once you build any amount of credit you will start to receive offers weekly even daily.

These can be tempting but using a great deal of caution is warranted.

When limits are raised high, temptation can take over or unbalanced reasoning can lead to trouble.

Using only the amount of credit one needs, not all that is at their disposal, is the important lesson to staying the informed, controlled consumer that retains a high credit score.



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