The importance of establishing credit can not be overemphasized. It has become virtually impossible to navigate life’s financial decisions today without credit, and it is even more difficult to improve your quality of life without maintaining good credit. Yet establishing credit may sound almost impossible since you need a credit history before you can get credit, but you can’t establish a credit history without having credit. But don’t despair establishing credit is possible and with responsible use, you can start building a good credit history in a relatively short period of time. So if you are confused about where to begin here is what you need to know about how to start establishing credit.
If you are just starting out and are applying for credit for the first time you may be surprised if potential creditors are a bit reluctant to approve your application. Whether you are young and just starting out in your career or an older person who have never used credit before you may face the same problem. But there are things you can do to help this situation. This lack of willingness to extend credit to you is mostly due to the fact that you have no reported credit history and creditors have no way of evaluating whether or not you are a good credit risk. But once you have a history of timely credit payments, additional credit will be easier to obtain. Here’s how to lay the foundation and build a positive credit history-
• Start as an individual-To establish credit individually for the first time, start in a small way. One of the easiest ways to do this is to apply for a credit card with a small credit limit from a local department store or local lending institution. Also consider that you might borrow a small amount from your local credit union or the bank where you have checking and savings accounts.
• Choose the right credit line-It will not do you any good if you do not choose a card that will report the credit activity. Be sure that you choose a company that regularly reports your bill-paying history to a credit reporting agency. It will not be helpful to establishing a credit history if they do not report their credit information so be sure to ask if they do so and, if not, choose another establishment.
• When you get the card or loan, be sure to use it. It does not do you any good if you receive credit and do not use it. Simply having credit is not enough to form a credit history.
• Always pay your bills on time. Payment history makes up the largest percentage of your credit score. Make it a priority to pay all your bills on time. Creditors will look for a history of timely payments in determining whether or not to extend you further credit and especially for large credit lines like those required for purchasing a home.
• Wait for at least six months to apply for additional credit. Multiple applications for credit can lower your credit score and decrease your chances of gaining additional credit. Make sure that you establish a positive credit history with the credit you have before applying for more.
• If your credit application is turned down be sure and ask why it was. You can gain a lot of information you need to build a credit history even from a credit rejection. Your lack of credit history may not be the only reason for a credit rejection there may be other reasons such as not enough time at your current address or job, or not enough income. Reapply for credit when your situation changes or apply to another creditor. Again, if you have been rejected for credit, wait at least six months before submitting a new application.