When you’re starting out with no credit history and no credit scores you might wonder how you can establish credit. You don’t have a record lenders can look at to judge your creditworthiness so you will typically get offers with high-interest rates and excessive fees. The simplest way to establish credit is to obtain a credit card.
Start with a Credit Card
Do not apply for several cards in the hopes that you’ll get approved for one, because this puts negative hard inquiries on your credit report and will not help you. If you apply for a normal “unsecured” card with no credit history, you will probably be denied. The better option is to go to your bank and request a “secured” credit card. For example, if you request a $300 secured card, you will need to provide the bank with $300 cash as security. If you don’t pay the credit card balance, then the bank is covered because they have your security deposit. The card will be treated like a secured credit card and your payment history will be reported effectively establishing your credit history.
5 Factors to Be Aware of When Establishing Credit
- Payment History – Your payment history contributes 35% toward your credit scores. Make sure to budget and pay all your bills on time. Just one late payment or newcollection account reporting could lower your credit scores 60 to 100 points.
- Credit Utilization – The balance on revolving accounts contributes 30%toward your credit scores. Making sure the balances on revolving accounts remain less than 30% of the credit limits is what you should aim for. If you can maintain a $0 balance, that’s even better. Make sure you still use the cards to keep them active.
- Average Age of Credit Files – 15% of your credit score is determined by the average age of your credit files. As your credit files “age”, your credit score will increase.
- Mix of Credit – The mix of your credit files contributes to 10%of your credit scores. A good mix might consist of a few reporting credit cards and a loan installment like an auto, student, or mortgage loan.
- Hard Credit Inquiries – Hard credit inquiries determine 10% of your credit score. A hard inquiry occurs when you apply for credit. Checking your scores online is considered a “soft” inquiry and does impact your credit score. Hard inquiries can remain on your credit report for two years;however, only inquires within the last year are factored into your credit scores.
Work with a Credit Expert
When you’re getting started or in need of credit repair working with a credit repair company can expedite the process and give you peace of mind. There are specific strategies you can take advantage to get where you want to be faster and stay there once you arrive. Give us a call today, and we’d be happy to answer any of your credit-related questions. 1(877) 772-7312