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.
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.
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.
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.
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.
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 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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