Steps to Establishing Credit

Establishing credit can be a challenging task for someone entering adulthood. A good credit history is generally required to rent an apartment, get an auto loan and may even be part of the screening process for employers. But if you need credit to get credit, how do you go about establishing it?

What Does Establishing Credit Mean?
Your credit file is a vital document that is used to obtain the necessities in life, and building a good report should be a priority. Your credit file is your financial report card and it may be reviewed by just about anyone that you could owe money to. That means not only home and auto loans, but this also includes your cable and electric bills, and even cell phone contracts.
Before extending you credit, lenders and service providers like to see that you are responsible and pay your bills on time. The only way to determine that is to look at your history of repaying debts. By looking at your credit score and credit file, lenders can estimate just how risky a client you may be and how likely they are to get back the money you will owe them.

How to Establish Credit
As you can probably see, establishing credit for the first time can be a bit tricky. Since it often requires having a credit history to receive credit, where do you start?

The first thing you want to do is to open a bank account and maintain some savings in that account. By having some net worth, it shows creditors you have some sort of income and ability to manage money. Once you have opened a checking and savings account, apply for a credit card through your bank. Since you do business with them, they are more likely to extend a small amount of credit to you.

But just having a credit card is not enough to build a history. You have to make your accounts active by using them regularly. That does not mean using your card to purchase items you cannot afford. While it is important to use your credit to keep it active, the amount doesn’t matter.

You simply want to use your card minimally and pay it off in full in order to build a good history of using credit and repaying your debts on time. What you want to avoid is taking out cash advances or using more than 30% of your available credit as it can hurt your rating.
If you have trouble obtaining your first credit card, having any type of service that has a revolving fee, such as an electric or cell phone bill, can help build your credit history. While these services usually do perform a credit check, you can often negotiate to pay two months of service fees upfront instead of getting approved through a background check. It may require a bit more money upfront, but this will help you quickly establish credit.Another trick is to obtain a secured credit card. A secured card means that there is an asset linked to the account, which the creditor can take if you fail to make payments. This generally takes the form of depositing cash into an account to “secure” it.

Establishing credit is only the first step to building your financial report card. You want to be sure that you not only have credit, but that you are building a positive credit history. That means always paying your bills on time, keeping your available credit to debt ratio low, and keeping accounts open in order to build a history of relationships with creditors and lenders.
Millionaire Money Habit: Your credit report is your financial report card that can help you or be used against you negotiate throughout important aspects of your life. Take building your credit rating seriously and you will save thousands of dollars in interest payments and fees throughout your lifetime.



Dennis Zabawa is an Leading Authority in Business Funding. Dennis is available to come and be a speaker at your next event. He has a great topic, "Why are you not wealthy?" For further information, please visit the website, www.creditiswealth.com