Life Events Guides - Building a Credit Record

Besides paying on time, there are several other ways to quickly build your credit record. Learn the secrets of taking out secured loans, secured credit cards, and repayment that will look positive on your credit report. There’s a great catch-22 for building credit. You can’t build or improve credit without a good credit history, but you can’t have a good credit history without having a credit past. Having a credit card gives you a distinct advantage over non-credit cardholders. Your credit card provides a way for lenders to know how financially responsible you are. It's difficult to get a mortgage or a car or business loan unless you have sufficient credit history. How can you build good credit?

The fastest way to do this is to visit a major department store and apply for their in-house credit card. Use the credit card to purchase a couple of small items, say around $50 total.

When you receive the first statement, immediately pay 50% of the balance due. Do not pay the balance in full. When you receive the second credit card statement, immediately pay off the balance owed. The department store will report your responsible use of the credit account to the credit reporting agencies (credit bureaus). Do not use this credit card again!

Now repeat the above process at a different major department store. Again, use you new credit card to make a small purchase. This time, when the first bill arrives, pay off the total amount immediately. As before, do not use this credit card again. Once again, the department store will report your excellent payment habit to the credit bureaus.

Wait a couple of weeks to allow the credit bureaus to create and update your credit reports. This waiting period is crucial to the success of the next step:

Secured Cards
One of the best ways for people to get their first card is with a "secured card." These MasterCard and Visa cards look just like regular credit cards, but they come with one key difference -- a secured card is backed (or secured) by money you have on deposit with the issuing bank. The money securing the card can be in a savings account, bank money-market fund or a certificate of deposit (CD).

The credit line on a secured card is typically 50% to 100% of the amount you have on deposit; in other words, your collateral. So, the more you keep on deposit with the bank, the more you can charge on your secured credit card. However, some banks will grant a credit line of 150% to 200% of the dollar amount in the account. Obviously, being limited to charging only what you and the bank know you can afford will keep you out of debt. Another plus: Many banks pay interest on the money you have on deposit, currently up to 4%. Secured cards have opening minimums ranging from $300 to $500, or even $1,000, although a few require only $250.

Make sure the credit card reports to one of the three major credit card bureaus: Equifax, Transunion, and Experian.

Retailers Credit
Another way to develop a credit history so you will eventually qualify for a standard credit card: (1) Get an oil-company card or (2) apply for a department-store charge card with a local retailer or a major company such as JC Penney or Sears. Again, make sure the issuer reports your timely payments to one of the three major credit bureaus.

Take Out a Secured Loan
Another great, easy way to establish good credit is by taking out a few secured loans. Go to your bank and deposit $500.00 in a savings account. Wait a few weeks and return to the bank. Ask the lender to allow you to take out a loan against that account. Pay the loan back slowly, at about 50.00/ a month. This will help give you a good track record of making payments over a short period of time.

Make Sure it Counts
After applying several of these methods, wait several months and order your credit report. See if the companies you borrow from are listed, If not, call the issuing bank and ask them to report on your payments to the credit bureaus. This should get your credit rating in shape for the eyes of future creditors.

Your credit report is used extensively in almost every area of your life. When you apply for a credit card, the credit card company reviews your credit report. Apply for an auto loan or mortgage and the lender checks your credit report. Apply for a good paying job and the employer will most likely check your credit profile. Do you recognize a pattern here?

The fact is that a spotless credit report is an absolute must in order to succeed in today's credit driven business climate. Even the simple process of renting an apartment is affected. Most landlords will consult your credit report before agreeing to rent their property to you!