QuickTips: How To Establish Credit

If your application is denied, find out why. If lenders deny you credit based on information in your credit report, they must give you the name, address, and phone number of the agency that provided the report. Upon your request, lenders must also give you the reason they denied your application. Knowing the specific reasons will help you work toward resolving the situation. Though some reasons only time will resolve, such as if your income was inadequate, or you haven’t lived at your current address long enough.

Start small and make your payments count. If you’re just starting out, open a checking and savings account and use them responsibly to show lenders you know how to handle money. Then consider a low-limit credit card from your credit union, or a department store card. Before you apply, make sure the lender will be reporting activity on this account to a credit bureau; otherwise you won’t have a record of how you handled this credit. Once you get a card, make your payments promptly each month to show you’re dependable.

Consider a cosigner. If your credit record isn’t strong enough to get credit, consider asking a friend or relative with an established credit history to cosign your loan or credit card application. The repayment information will usually be posted on both of your credit reports, giving you the chance to build a solid credit history. But don’t treat this opportunity lightly. If you’re late paying the bills, or miss payments, you can damage both your credit records, and worse yet if you don’t pay, your cosigner will get stuck paying off your debt.

Consider secured debt. Another option is to apply for a secured credit card or loan from a reputable financial institution, such as your credit union. Here’s how it works: You open a savings account to serve as collateral and your credit limit is a percentage of your total savings deposit. You can’t use the money in this savings account, but it usually earns interest while you build your credit history by making prompt monthly loan payments. Make sure the financial institution reports account activity to a credit bureau so your efforts count.

Avoid secured card scams. Be wary of secured credit card offers from unknown companies — they may charge stiff application fees, high interest rates, and steep annual fees. And think twice before calling a 900 number for information about secured credit cards - the call itself can cost as much as $50, and there's no guarantee you'll receive a card.