As you’re probably already aware, establishing / building your credit history can be a little bit frustrating. Often, the first step is to open a checking or savings account and apply for a small personal loan; but that’s just the start! It’s not a quick or easy process, and eventually you’ll 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; here’s how to get started on the path to prosperity:
Be Patient – Start Out Slow!
If you have no credit whatsoever, understand that establishing good credit takes time. Patience is extremely important! Building strong credit requires consistency and dedication to paying all of your bills on-time. This demonstrates your ability to handle credit responsibly – but it doesn’t happen overnight.
Building Good Credit Habits
Your credit score, which impacts every aspect of your financial life, 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 banks, lenders and other financial institutions that you’ll be able to handle borrowing money responsibly.
Understanding 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 evaluate your credit rating as well.
Your Credit Card Options
Unfortunately, with little or no credit history you’ll be starting from the bottom. Ideally you’d like a credit card with a low rate, no security deposit and no annual fee; but until you build or improve your credit score, you may have to settle to one of these types of offers:
- Unsecured Credit Cards – Considered ‘standard’ credit cards, unsecured credit cards do not require a security deposit to ‘secure’ an approval. Although unsecured offers are typically reserved for people with good / excellent credit histories, there are a few exceptions available at ASAP Credit Card.
- 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 the outstanding balance.
- Retail Credit Cards – Retail credit cards are sometimes offered by popular department stores, gas stations and online merchants. Although they’re generally easier to obtain than standard unsecured credit cards, they usually carry VERY HIGH INTEREST RATES and abnormally high fees. Be cautious when using store or retail credit cards! Read and understand all of the fine print.
Common Reasons for Being Denied
If you apply for a credit card and get denied, it’s important for you to understand the reason. You should receive a written explanation in the mail within 30 days, so be sure you know why you’ve been denied so that you can make the necessary corrections. Here are the most common reasons people are turned down for a credit card:
- 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 over time by using a credit card responsibly. There are a number of options to consider, just remember that it’s vital to keep making those payments on-time, each and every month.