There are lots of reasons why you might be looking to establish or
re-establish credit. Maybe you're a recent college grad, a newly arrived
immigrant, or someone who just went through a divorce. Or perhaps your dog used
to eat your mail, causing you to pay your bills late...or not at all. Whatever
the case, there are a few things you can do to establish credit even if you
don't currently have any credit cards or loans.
Step 1: Open an Account
Open an account, preferably a checking account. By paying bills via check and
not overdrawing your account, you begin to prove that you may be a good credit
risk. Keep your monthly statements as proof that you're a good money
Step 2: Get a Secured Credit Card
Secured debt is backed by some form of collateral (usually a savings account
with the same institution that grants you the credit). The money deposited with
the lender sits untouched unless you miss a payment or file bankruptcy, in which
case the credit union or bank may be able to seize the assets in your account.
This account gives the credit union or bank the confidence to take a "risk" on
someone who doesn't have an established credit history.
Don't be persuaded to pay a high fee just to gain access to a credit card --
there are plenty of credit unions and banks that offer secured cards with no
application fee. Go to Consumer Action for information about building credit
with secured cards, and to get a current list of available secured credit cards.
If you have trouble getting a secured card on your own, as a last resort
consider having one of your family members with good credit cosign your credit
card application. Be aware that if you miss a payment, the credit union or bank
would demand payment from your cosigner, guaranteeing, at the very least, a
strained relationship between you and your family member.
Not everyone qualifies for a secured card. If you've filed bankruptcy
recently, you may be rejected.
Step 3: Document Your Payments
If you're already paying rent, utility bills, childcare expenses, student
loans and so on, you may be able to prove your creditworthiness by providing
proof of timely bill payments. Keep good records and ask for letters of
recommendation from the individuals and businesses you make payments to. Then
use them, plus proof of income, to convince a prospective lender that you are
responsible enough to pay your bills in full and on time and would be a good
A Few Final Words...
- Be patient. It takes time to establish credit.
- Always shop around for the right deal.
- Learn about credit products and terms, and your rights and responsibilities
as a borrower. The best way to avoid being taken advantage of is by being well
- Once you do get a credit card, make only small purchases on it -- ones
you're absolutely sure you can repay on time.