Getting Credit
for the first time - As most young people who do not have credit
can testify, getting credit for the first time can be a challange.
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.
Choosing what kind of credit to apply for is important. Most local
banks have credit building loans. These are small personal unsecured
loans or personal loans secured by funds you have in the bank. The
repayment period for a personal loan should be a year and you need
to make sure the bank regularly reports to credit bureaus.
When using
credit cards for the first time make sure you use them for your
normal purchases so you don't over extend yourself. It's okay
to pay them off but doing so with 3 equal payments over 3 months
will have a better impact on your score.
Try not to
apply for multiple credit cards from various financial institutions
simultaneously. Banks often frown on an application where the
credit applicant's credit report has too many credit inquiries
within a short period of time. If you are turned down for credit
card application, then apply for a store credit card. It is generally
easier to get a department store or gasoline credit card than
a Visa or Mastercard.
Once you have
obtained your credit card be sure to keep the balances below 50%
of the max limit. Once the balances reach above 50% of the max
limit it can affect your credit in an adverse manner.
Often, department
store credit cards are easier to obtain. Those stores give out
credit more freely because they know it increases their sales.
These are good starter cards.
When you receive one of these cards, use it carefully. Most consumers
believe credit card companies like cardholders who pay off their
cards every month. Wrong! They prefer cardholders who maintain
a balance and pay them interest every month. However, as your
balance gets close to the limit, they start to worry that you
won't be able to make your payments. So, to build your credit
quickly, you should never charge your card up to more than 50%
of the limit, and never pay it down below 35% of the limit.
Have a family
member place you on an existing credit card account as an "authorized
user". This will be listed on your credit report and will help
establish a credit score and credit history.
After getting
your first credit card you should strive to make every payment
on time.
Even a single late charge will appear on your credit report for
up to seven years.
After 6 months of on time payemts, many credit card companies
will allow you to increase you credit limit
which has a positive impact on your credit scores.
For many individuals
their first form of credit is a secured loan. A loan that is secured
is a loan that is guaranteed against some collateral. An auto
loan is a good example. Some banks can offer a secured line of
credit, which would be something like a credit card where the
available balance is secured against some form of collateral
It is important
to read the fine print on the back page of credit card offers.
Interest rate should not be the only thing you look for. Very
often offers sent to people with no credit or poor credit have
initial fees and yearly fees attached. These fees can add up quickly
and actually eat up most of your itial credit limit.
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