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How To Establish Credit

It's been a Catch-22 dilemma, especially for young people, since the dawn of the Credit Age. You want credit, but you can't get credit because you've never had credit before. It's a situation everyone faces as they begin to try to become creditworthy.

In order to qualify for a credit card, you must me at least 18 years old (or 21, if you're a permanent resident of Puerto Rico). From then on, the rules get more complex and are subject to interpretation by credit card issuers. In general, however, you'll need a regular source of income or savings, so the credit card issuer can be assured you have the ability to repay the money. They'll also look at your credit history, which is where most young people will begin to have difficulty, because they don't HAVE any credit history.

If you happen to be a fulltime student when you fill out a credit application, make sure to notate that on your form. In many cases, credit card companies will be more lenient with fulltime students, and will issue cards with lower credit limits, in order to help them begin to establish a credit history. As time goes by and you prove yourself to be a good credit risk by paying your bills on time, you'll be able to ask your cardholders to increase your limits.

Another good way to help credit card companies see you as a good credit risk is to open a checking account or savings account, especially ones with debit cards. Debit cards are similar to credit cards, but they aren't loans. When you use the card in a store, they swipe it through their register the same as a charge card, but the money is automatically deducted from your checking or savings account. Using a debit card wisely can help


convince credit card companies that you're a good credit risk.

There are some department stores that are very liberal about issuing cards to customers. You may be able to get a card with very little credit history--or none at all. However, you must be careful with many store cards, because the interest rates are often very high, sometimes 20 percent or more!

To establish a credit history using such cards, buy something relatively inexpensive and then pay it off in several installments. Don't pay it off completely when you get the bill (although that's a great plan for later, because you normally don't pay interest on charge cards if you pay them off in full every month). Instead, pay off the item over several months, to show that you can repay the bill on time and in full. Once you've done that a few times, your credit history will begin to show creditworthiness, and you can apply for lower rate cards that can be used in a wider variety of situations.

Having a major credit card is vital in many situations, such as renting a car, since they'll almost always ask to see a major credit card, even if you're paying cash for the rental. Remember, there are ways to obtain that major credit card, even if you have no credit history. Start small and continue to be responsible in building up your creditworthiness.

Copyright © Jeanette J. Fisher

About the author:

Jeanette Fisher teaches six ways to build credit. Free credit ebook "Credit Tips for Mortgage Financing" http://worryfreecredit.com