Without a credit history, it’s really hard to get a credit card or any other type of loan.

But establishing your initial credit history can be a Catch-22: If you don’t have credit, not many places are willing to give you credit; but how can you establish credit if nobody will  give you any?

First, you need to understand what lenders are looking for.  Since you are looking to establish credit for the first time, lenders can’t look to your credit score to determine if you are a good risk and if they should lend you money, or extend credit. In these situations they have to examine other factors that can help them decide if you are a credit risk or not.  Several non-credit based factors they will look at include:

• Employment history. Lenders want to see if you are able to hold a job or if there are periods of unemployment. Your ability to hold a steady job can improve the likelihood of getting approved.
• Residence history. Lenders will also look to see how often you move and whether you rent or own. As with employment history, it pays to have a stable residence. Owning a home, even if just jointly with a spouse, carries some weight as well.
• Utilities in your name. Even without a credit history, it is possible to sign up for many utilities in your own name. Having an electric or gas bill, telephone, cable, or water service in your name also helps. Just having your name on these accounts won’t establish a credit score, but it can be helpful for first-time borrowers.

Establishing credit in your own name.

• Open a checking and savings account. By themselves, they do not give you credit; however, they will show that you have money and how you manage it. If you are a student, check if your bank offers a free student account, if not check what you can do to get access to a free account. Make sure your bank account always has a positive balance and that you do not overdraft it.

• Apply for your bank’s credit card or a department store card. Because you do not have an established credit history, the initial interests will be very high. This is why you need to make sure that you use your credit card, but pay it back before the end of the month so you do not have to pay for interest. Only get a credit card if you are sure you can do this, otherwise do not get one. If you feel too tempted to buy things you cannot afford because of a credit card, chances are you will get into debt. Remember to not apply for more than one credit card. If you are refused, wait a year and try again. The more credit cards you apply for, the lower your credit rating gets because the lenders will think you are desperate for credit.

• Get a co-signer for a car loan or a credit card. Remember that if you do not pay your bill on time, your co-signer is responsible for paying it. So make sure that you will be extremely responsible with that.

• Get a secured credit card. This means that there is an asset linked to the account that your lender can take if payments are not made.  Make sure that this credit is reported to the bureaus.  One of the few that allow you to do this is AccountNow, which offers the ability to enroll in a free Credit Builder program to demonstrate your credit worthiness to potential creditors like landlords.  Just pay your bills through AccountNow Bill Pay and they will automatically report your payment history to PRBC®, a national credit reporting agency.

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3. Credit Score Secret Sauce – How Credit Bureaus Calculate Your Credit Score
4. How To Avoid Teenage Credit Mistakes With Your Kids
5. How Divorce can Impact Your Credit Report

Tagged as: bad credit, Credit, Credit Bureau, credit card, credit report, credit score, FICO score

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