In the right hands, credit cards can be tools for financial power. The catch-22 of credit is that it takes credit history to establish credit. If you’ve never had a credit card or a loan, establishing credit can be difficult. There are still a few successful paths, however, to building a solid credit record.
Credit history is not the only factor lenders consider when deciding to extend you credit. Factors such as employment history, bank accounts and residence history are likely to be investigated as well. Someone who has difficulties holding down a job or struggles to keep their bank account in the black will make a lender worry about whether or not debts will be repaid. However, showing reliability in these areas will increase your chances of getting approved for a loan or credit card.
If you have an account at a bank or a credit union, that is often a good place to start when asking for a credit card or loan. Department stores are usually more than happy to provide you with a line of credit, so that can be a great way to establish credit and prove that you are capable of handling a credit card. However, beware of the high interest rates these cards often carry. If at all possible, pick a department store where you already make purchases to ensure that you don’t spend money unnecessarily; then use the card to buy what you typically would purchase, and pay it off each month.
Even without credit history, you may still be eligible for certain types of credit cards. College students may be able to obtain a student credit card. These types of cards require little or no credit history and are a great start for a college student trying to establish credit. The only thing to keep in mind is that with the Credit Card Act of 2009, applicants under the age of 21 will need a co-signer or a proof of steady income before a credit card will be granted.
Additionally, a secured credit card is a great way to build credit, and is often easier to get than a traditional credit card. The downfall of a secured credit card is that you’re required to deposit money in order to get the card.
Once you have a credit card, be smart about how you use it and how you pay it off. A credit card can help you establish credit but it can also destroy it, if you aren’t careful. Use the card regularly, but pay off what you spend, and don’t use the card to buy things you don’t need.