How To Start Building Credit – Guest Post
A question that is often heard straight from college students is “how can i start building my credit?”. Everyone has to start from somewhere and it is not easy to get a card, if you have absolutely no credit history. If you are lucky, you might be able to get a relative to co-sign for your first credit card. But, not everyone has this type of support. If you need to get a card with no credit history, you will have a few more hurdles to jump over.
Here are some tips to help you build a credit history if you can’t qualify for a credit card:
To get a card on your own, you will need to prove that you have a source of income. In the recent past, college students were able to qualify for credit cards even if they did not have a job. The CARD act of 2009 changed this to prevent students from being overrun with credit card debt as they go through school. This new law states that they must have the ability to pay back the debts or have a co-signer in order to be approved for a card. Even though this law might prevent you from having easy access to a card, it is beneficial to many kids that become overwhelmed with debt.
Being a college student is expensive and credit cards can be a tempting way to finance it all. So if you can get someone to vouch for you as a co-signer, you are in luck. You can “leech” off of a friend or relative’s credit to get your own card. But if you fail to pay, they will be on the hook for all the charges.
Even if you don’t have enough income to be approved for a credit card, there are still ways to establish a history. One way that you can do this is to use a secured credit card. Getting a secured card doesn’t require you to have a good credit score, or any credit history. A secured credit card works exactly the same as a traditional card, but the money is withdrawn from a prepaid account.
A good thing about these cards is that many of them report each transaction to the 3 credit bureaus. Over time this can help to establish a credit history. Not all secured cards do this, so make sure the one you apply for has this feature.
You also should be wary of certain “high fee” secured cards. Some take fees each time you withdraw money, make a charge, deposit money, etc. Make sure you understand the fee structure, BEFORE you deposit cash into your account. Minimum deposits for these cards can range from $200 to $500.
Personal or Car Loan
Another way to build a credit history without a credit card is to take out a small personal loan or car loan. A car loan is considered to be “installment debt”, which makes up a percentage of your history. Installment debt is not factored into your score as highly as “revolving debt” (credit card, gas card, department store card), but it is still a major factor.
Responsible and timely repayment of this loan will give credit card companies some history to go on. This may help you get approved for a traditional credit card. Although, a loan should not be taken just for the sake of building a history. There are other ways to build credit, without taking the risk of a loan.
Gas or Department Store Cards
If you aren’t able to qualify for a card from the major credit card companies, you might try a gas or department store card. These are often easier to obtain and can still build a history like a regular card. If you use them on a regular basis for a long period of time, it will reflect positively on your credit score. In the log run this will help you qualify for the low interest card that you really want. Many department store and gas cards can be high interest so make sure the balance is completely paid off each month.
A good credit history is important simply for the fact that many companies use it as a gauge to decide whether or not to work with you. Buying a home, renting an apartment, or applying for a job are all instances where a positive credit score is beneficial. Building a history while you are younger can be important, because you will be ready when you’ll really need it.
Ross is a financial blogger and contributes regularly to the website Great Credit Score.