Art of Getting Credit

Learn the Art of Getting Credit with

If you are just starting out after college or high school, or if you have never had credit in your own name, it can be difficult to get a card or a loan with a reasonable rate. A lack of history can be as financially crippling as a poor score. In a way, you may feel financially frozen in a vicious cycle—you can’t get credit because you’ve never had it, and you’ve never had credit because you can’t get. Luckily, there are some things you can do to build a good history.

The Art of Getting Credit

Here are the most important moves you can make to build a history when you’re starting from scratch:

Open a checking account: Opening a checking account is one of the fastest ways you can start to establish financial credibility, so if you don’t have a checking account, open one now.

Demonstrate financial responsibility: This may sound like a no-brainer, but if you don’t have a solid financial history, you have to be especially careful not to overdraw your accounts or bounce checks. These actions will show potential lenders that you are not credit-worthy. And if you rent an apartment, make sure you pay your rent and utilities in full and on time.

Apply for a small line of credit: This is like starting a new exercise program—you have to start slowly. Applying for a small loan from your local bank is a good start. Or obtain a low limit card from a local department store. Be sure to ask if they report to the necessary bureaus—if your transaction goes unreported, it will do nothing to improve your history.

Get a specific kind of card: Some cards, such as gas cards, are relatively easy to get, even without an established history. Apply for a gas card and pay it off every month—this will demonstrate that you are financially responsible.

Don’t apply for numerous cards at once: If you’ve applied for a number of cards in the last few months, a red flag will go up for lenders—they will fear you are in over your head. So if you successfully get one card, stop there. Also, avoid applying for cards you aren’t likely to be approved for—just because you receive an application in the mail doesn’t mean you are already approved. The more rejections that show up on your report, the worse your history and report will look.

Find a co-signer: If you’re having trouble getting a gas or department store card on your own, ask someone you trust to co-sign the account for you. Make sure you make the payments in full and on time.

If you apply for a loan, make a large down payment: Making a significant down payment on a loan shows lenders that you are financially secure. If you don’t have the cash for a big down payment, consider borrowing some from a trusted friend or family member.

If possible, maintain a stable lifestyle: Some creditors look for other factors in addition to financial history, including how often a person moves or changes jobs. The more changes you’ve made in your life, the more financially risky you will appear.

Begin establishing a good financial history by obtaining a copy of your credit report and credit score now!