If you have not started building up your credit history over the years, you may already know just how difficult it might be to get a credit card, mortgage, or car loan. The problem with starting your credit history is that many lenders won’t give you a credit card or a loan to get you started. So how do you get your history going if nobody will give you a chance?
What Factors Banks Look At
First, let’s look at the factors banks use when establishing a line of credit for people that don’t have a history of credit use or a credit score. The bank will begin the process by analyzing your bank account. If you don’t have a bank account, then you will be pushed back in the process and will many times be asked to open one before going any further. The down side to solely using a bank account is that your bank will not report any items to the credit bureau, so you won’t be building up any credit. The upside is that you are able to have history with that bank through your account and they will be able to look at that when establishing a loan.
Next the lenders will start looking at your history of employment. Banks want to be able to see that you have had some form of steady and reliable income over the years. They also check for periods of unemployment. If you have had steady income, then there is a much better chance to for you to acquire a loan.
After that, the banks are going to look to see where you have lived over the years. If you have been living in one place paying rent for a period of years, it will definitely benefit you throughout the process. If you have moved around a number of times over the years, then it may affect the bank’s decision in terms of a loan and your credit.
Lastly for people without credit, banks can look into the utilities you pay and the history of payment you have in terms of those bills. Most utility companies don’t require credit checks, and banks can look at your electric bill, gas, phone, water bills, and so on. These items don’t establish credit but can show a bank that you have a history of payments made. Keep making payments on time, and stay in good standing with any companies that you have bills with, and the entire credit process can be easier in the long run.
Building a Relationship with your Bank
To help when you are starting off building credit, it is good to build a relationship with your bank. This all starts with getting that checking account we talked about. Also, it is beneficial to have a savings account. This way you are starting to build a relationship with the bank that helps you out and ensures that they have a history of finances to look at. As long as you keep your accounts in good standing, the bank will see that you are able to manage your money. They can then see this history instead of a credit history to determine if you are a credit risk. All of this will help when you are looking to get your first loan no matter whether that loan is for a car, home, school, or anything else.
Department Store Credit Cards
If you are not having any luck with getting credit through your bank, there are other options. One starting point that many consumers look into is applying for and receiving department store credit cards. To many, this doesn’t always seem like a reasonable way to build credit, but it is legitimate and far easier to qualify for.
You have certainly heard the sales pitch before from the cashier in store, but you may want to consider the idea more than before. And hey, sometimes you can even save as much as 10% off of your purchase. These cards, or ones like it, can often be the first step to acquiring a credit history.
The problem with these cards is that many people use them to rack up expensive spending sprees. You do need to start with a small purchase to build the credit up. Make sure then to pay off the balance as quickly as you can and try to use your card minimally before allowing your spending to get out of control.
Secured Credit Cards
If you are in a situation where you do not feel comfortable with a department store card, or cannot qualify for one, then there is one more option you can look into. Secured credit cards can also be used to build up credit, and are often the easiest cards for consumers to get their hands on.
Think of any loan you are looking into, whether it is a home loan, automotive loan, or something else. If you fail to pay what you owe to any one of these companies you will then lose the item. Thus, there is added security on the item, which is incentive for companies to deal with people that do not have any credit rating. With a secured credit card you are going to have to put a deposit on the card for the limit. This way if you fail to make the payment the bank takes that amount from your deposit. These cards can be a great way to start your credit history and are very good for students as well.
Just remember once you establish your credit history that you want it to be in good standing. Make sure to make your payments on time to establish good credit over the years. It is never too early or too late to start building credit, and it is one of the most important pieces for your personal finance. Take initiative and be responsible, and you will be rewarded in the long run.