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How to Build History With a Credit Card

How to Choose the Best Credit Card Offer...Here's how you can use a credit card to build your credit...

There's many ways to start establishing and building your credit history. Often, the first step is to open a checking or savings account and apply for a small personal loan. But that's only the beginning! Eventually, you need to apply for a credit card to take your credit to the "next level". When used properly, credit cards are a great way to build or improve your credit score over time. Here's how to get started on the path to prosperity:

Start Out Slow!

If you have no credit whatsoever, understand that establishing a good credit history takes time. Patience is extremely important! Building good credit requires consistency and dedication to paying all your bills on-time. This demonstrates your ability to handle credit responsibly - but it doesn't happen overnight.

Build Good Credit Habits

Your credit score is completely dependent on how you handle the privilege of borrowing money. Keep track of all of your credit accounts and loans, make sure you pay at least the minimum payment - and always pay on-time! If possible, pay more than the minimum or pay the bill in full each month. Paying off your credit card and other debts in a timely manner shows lending institutions that you'll be able to handle borrowing their money responsibly too.

Understand Your Credit Score

Whenever you request a service or borrow money your actions are recorded by the three major credit bureaus (Equifax, Experian and TransUnion) and calculated to reflect your credit score. Your credit habits, whether good or bad, are reflected in this score. Your credit score can be negatively affected anytime you're late or miss a payment on a credit card, student loan, auto lease, mortgage or other credit account. It's also negatively affected whenever you carry a large debt, so make sure you never carry a balance greater than 50% of your total credit limit. The higher your credit score, the better you look to potential lenders. Not only is this number imperative to creditors, but some insurance companies and employers judge your worthiness for insurance or a job on this rating.

Your Credit Card Options

For varying levels of credit, you'll find varying types of credit cards. Ideally, you'd like a credit card with a low interest rate, no security deposit and no annual fee. But until you build or improve your credit history, you may have to settle to one of these types of offers:

  1. Unsecured Credit Cards - Considered 'standard' credit cards, unsecured credit cards do not require a security deposit to 'secure' your approval. Although unsecured offers are usually reserved for people with good / excellent credit histories, there are a few options available for people with poor / no credit (with some extra fees).
  2. Secured Credit Cards - Secured credit cards require a 'security deposit' to receive approval but are very easy to obtain regardless of your credit history. Since your account is 'secured' by a security deposit, if you're unable to make a payment for any reason, the bank can use the deposit to payoff your outstanding balance.
  3. Retail Credit Cards - Retail cards are sometimes offered by popular department stores, gas stations and merchants. Although they're generally easier to obtain than standard credit cards, they usually carry very high interest rates and abnormally high fees. Be cautious when using store credit cards! Read and understand all the terms and conditions.

Common Reasons for Denying Credit

If you are turned down for a credit, understanding the reason is important so that you can make the corrections necessary to earn their trust. The most common reasons people are turned down when they apply for a credit card are:

  • Not enough employment history. (Reapply after you've been on the job for 6 months.)
  • Not enough time at current residence. (Reapply after 6 months at current residence.)
  • Too much outstanding debt. (Pay down your lower balance credit accounts and reapply.)
  • Unreasonable purpose for requesting credit. (Reconsider if you really need the loan or credit.)
  • Cosigner cannot take on additional debt. (Find another cosigner or wait 6 months and reapply.)
  • Errors on applicant's credit report. (Have corrections made to your report.)

With a little patience, hard work and consistency, you'll be able to build up your credit history and improve your credit score. Keep making those payments on-time and stay focused!

* See our complete list of cards for poor / no credit history >

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