Four Steps on Your Way to Good Credit Score
09/14/2007 | Understanding Credit Cards
For young people getting started in life, it can seem impossible to take even the smallest steps toward their own financial independence, including obtaining credit cards and establishing a good credit rating.
They are often denied credit cards because they do not have any established credit and so their risk factor is undetermined by the credit reporting agencies. Of course, this leads to the age old chicken and egg question. Which do you get first? A credit rating or credit? How is someone to obtain credit in order to then establish a credit rating? It seems to be a vicious circle that can be very frustrating.
There are some definite steps that can be taken to start down the road to establish credit and a good credit score however. These steps may be small ones at first but this is a long term goal - not one that can be undertaken lightly and accomplished in a matter of months.
1. Get a job. Being employed is the first step to proving that you are financially capable of making payments on debts and credit cards. Try to stick to the same job for at least a couple of years to show that you are stable. Jumping from one job to another in a matter of months does not demonstrate the stability that financial institutions require when taking the risk of loaning you money and giving you credit cards.
2. Open bank accounts. You will be able to show your financial stability much better when you have a checking account that you pay your bills from. This will show some consistency in your financial affairs. You will want to pay your utility bills and your rent from this account to establish this. As a new customer you may be required to pay a deposit to the utility companies until you have proven yourself credit worthy. Usually they will refund these deposits after you have made your payments faithfully for a year. Many rental management companies report to credit agencies so even paying your rent faithfully for a year will give you a start with obtaining a good credit score.
3. Get a report. After you have been employed and have been paying your utilities and rent on time for a year, you should learn about your credit eligibility from one or all three of the credit bureaus. Equifax, Experian and TransUnion will all provide you with a credit report on request. There may be a small fee for this report. You need to check what is on the report carefully. Make sure that you make the agencies aware of any errors. If these agencies do not yet have a file on you, you should enquire with your utility companies as to why they have not reported on you.
4. You can now make a credit card applications. You must be very careful not to apply to too many however because all the enquiries made may negatively reflect on your credit report. Select one card only and apply for a fairly low amount of credit. If you do not qualify for this card you should apply for a secured credit card. This means you put funds into an account that is collateral for your credit card. After another year, you can apply for an unsecured card.
It is extremely important to keep making all your monthly payments on time if you intend to increase your credit rating further. Your rent, your utility bills and now your credit card should all be paid by their due dates and in full every single month. These businesses report monthly to the credit agencies and slowly your credit rating will get stronger.
There is no shortcut to a good credit rating and starting out with no credit at all means a slow progression indeed. Patience and perseverance will result in an excellent credit score in your future however, and when it comes, you will surely have earned it.
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Comments
Laura, 12:55 AM, September 17, 2007
Thanks for helpful tips in establishing good credit score. I'm going to apply for a credit card and don't even know what to begin with. Hope your site will help me.
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