Establishing credit can be hard if you have little or no financial history. The very first thing lenders wish to know when you apply for a loan or credit card is what sort of financial track record you have, and they will check your credit rating or FICO score to look into your past. If you have limited credit experience, it can make it challenging or nearly impossible to get a loan. How can you build credit if you have no credit?

These tips may assist you on the path to building a solid financial foundation.

Open a checking and a savings account. Make a habit of making use of them on a regular basis by saving money for a rainy day and by repaying your bills promptly by check. It’s a small start, but these are financial transactions and they will help you build a credit rating. Keep in mind that writing bad checks will defeat the purpose of having the account, so use the checking account responsibly.

Obtain a secured credit card. A secured card is one that has a limit that is backed by a cash deposit. The risk to the lender is minimal, as they have your cash on hand in the event that you fail to pay. A card with a limit of as little as $100 may possibly be helpful if you use it on a regular basis and pay your bill completely each month. Make sure that your bank will supply information about the card and your use of it to the credit bureaus. Secured bank cards have a tendency to have higher fees and rates of interest than unsecured charge cards; you do not want to use one if it isn’t going to help you in any way.

Check your credit report. You can obtain a copy of your credit history for free at annualcreditreport.com. Make sure that the information on the report is correct, and look out for errors. It has been estimated that almost a quarter of all credit reports have mistakes; if you have someone else’s debt recorded in your name it could possibly harm your ability to obtain a loan for years.

Wait. That is the challenging part, but building any type of FICO score takes time. You should use your checking account and secured credit card for a year or so, making regular payments. In time, you’ll build a FICO score that should earn you the ability to get more suitable accounts and small loans.

Establishing credit takes time and effort, but it is well worth it.

This entry was posted on Friday, May 21st, 2010 at 11:43 am and is filed under Credit Advice, Credit Tips. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.