Establishing Credit

“How do I establish credit, when I don’t have a credit history”? This is probably the most commonly asked question by most consumers looking to open a credit account.  Not having credit can be just as difficult as having bad credit unless you know how to go about proving yourself to a potential creditor.

The crazy catch twenty-two:

How can you get credit if nobody is willing to extend you credit because you don’t have any credit history? A good place to start is by obtaining a letter of credit from a company that you have been dealing with already that does not report to the credit reporting agencies.

An example would be your electric company.  It is possible to contact your electric company and request a letter of credit.  They are likely to require that you have had an account with them for at least a year as with most companies that you are asking for a letter of credit.  Your cable company may be another option for a letter of recommendation for credit.  If you have had an open account for at least a year and have made on time monthly full payments, without payment arrangements, these two companies are good candidates to provide you with a letter of recommendation for credit.

To establish credit either with or without a letter of recommendation for credit, you could also start with your banking institution.  All banks offer credit card and loan accounts.  If you have banked with the institution for at least a year (sometimes 6 months) they may strongly consider extending you a line of credit.  In the beginning of any credit account, your interest rate may be high, but don’t despair, after your first positive review in about 6 months, the interest rate may fall dramatically as well as your payments if you have been making minimum payments.

Just to get you started.  Your new account may be very low.  After about 6 months of on time payments, your lender may review your account for a larger credit line.  The smartest technique is to start with baby steps.  Start with just a small account, pay the accounts regularly, get used to the monthly obligation, and make on time monthly payments before jumping into any other credit account(s).  You are very likely going to find creditors coming out of the wood work and hunting you down to offer you a line of credit, consider their offers with caution.  Actually, the best recommendation is to give your self at least 6 months to a year before taking on a new account.  Jumping in too fast can easily wipe out all of the hard work you have done so far to establish some credit.

Once you jump on the credit bandwagon, it is vital that you keep track of your own credit rating.  You will find many great offers online for programs that can inform you, on a regular basis, of your credit standings.  You could also request your free annual credit report and verify your status regularly.

Once your credit becomes active, keeping track of your credit report is crucial for many reasons:

   1. It could prevent the use of a fraudulent credit account by an unknown user.

   2. It could prevent the unfortunate event of somebody stealing your identity and using your credit.

   3. It could help find a lost payment and assist you with keeping track of how your creditor is reporting your payment activity.

   4. It is just good credit etiquette to know your own credit rating.

   5. Knowing your own credit rating and status gives you bartering power when dealing with a new potential creditor.

Once you’ve established some credit, take caution with accepting credit offers from other creditors, look into the interest rate the lenders are offering, consider the monthly obligation in addition to your other financial responsibilities such as rent, utility bills, car insurance, groceries, laundry expenses, gas, day care, etc., and feel free to decline credit offers.

In the beginning of your adventure with new credit accounts, it can be very exciting to have several creditors offering advances, it can be an uplifting and powerful event, however, pursue with caution in order to maintain a healthy credit rating and score.  Keep your credit history in mind and respect the great task that you have accomplished by establishing credit with caution.