The first thing a person looking into credit for the first time will see is that no credit can sometimes be worse than bad credit. Lenders look at your previous credit history when determining if they will extend credit to you. If you’re looking to open your first credit account, this could be a redundant circle.
The first thing you can do is open a savings and checking account. You want to have a savings account and you’ll need the checking account to pay your bills.
The only benefit to starting your credit file is that you have a “clean slate” with no mistakes and it’s best to keep it that way. Remember that payments need to be made on time. With no credit history to reference, you don’t want what you do have available to be negative.
One of the best ways to start to establish consumer credit is with a secured credit card. This is a credit card issued by a lender with a security deposit that you pay prior to receipt of the card. Your credit limit on the account will vary depending on the amount of your deposit. Typically, these carry an average interest rate and any other finance charges the bank may apply. With a secured Visa/MasterCard, you have all of the charging privileges of any other credit card. How you manage that credit card will reflect in the payment history on your credit report. You are using your own money and paying interest on it, but you’re paying to establish your credit history. Which is a worthwhile investment.
While a secured credit card is typically easier to acquire for someone with little or no credit history, an unsecured credit card is also an option. Most credit cards offered by banks are unsecured, meaning there is no collateral attached to it. Unsecured credit cards are riskier than secured credit cards so by managing an unsecured card properly, you may appear as a better credit risk to lenders. Unsecured cards have a credit limit based on credit history and generally carry the same finance charges as any other card.
When establishing a credit history, what you really want to portray is that you have requested and used credit as it was needed. Credit is necessary for many things, by accepting credit you truly need and managing it properly, you will show yourself as a good credit risk.
