Establishing a credit history- a beginner’s guide

Building a credit is tricky especially when you have zero credit history. Without a credit history, it is hard to get a credit card, loan and even an apartment among other things. Having a high credit score sis very helpful when you are trying to take on an insurance, mortgage, secure a loan, build a business or even get job. Lenders will look at the credit score to ensure you can make the payment son time.  The concept is very confusing. How can you create a history when you do not have a credit card in the first place?

How to establish your credit card- 5 simple tips

Apply for a secured credit card or loan

If you are trying to build the credit from scratch, you should do it with a secured credit card.  It is difficult for first time applicants to get their normal credit card applications approved, that is why you should always go for the secures loan. The difference is, you will have to make a security deposit payment upfront. It should be the same amount as the loan limit you are receiving. Secured credit cards are the perfect way to build your credit from scratch. Once you make the payments on the credit card on time, you start receiving the scores.

Keep in mind that if you fail to make the payments on time, the deposit is used as collateral. When you think you have enough points to qualify for normal credit cards, you can close the account and access an unsecured card account.

Get credit for your rent

Some credit card services have an option where you add your monthly rental payments to your credit history. If you make the monthly rental payments on time, the credit history and points start growing more positive. Not all lenders will account for the rental payment on your credit card, so you better make sure they do before you sign up.

Get a co-signer

If you know someone with a good credit score, you can request them to co-sign your credit card. Even though it sounds simple, there is a catch. When you do not make the credits and loan payments on time, you risk lowering the points of your co-signer. They are responsible for all the missed and late payments on your part.

Become an authorised user on someone’s credit card

Your family, friends and business partners have the freedom to add you as a user on their credit cards. Legally, you are allowed to access the credit cards when you need to and you can build some points from there. I suggest you create terms for the shared credit to minimise misuses of funds and late payments.

Apply for a credit builder loan

This is a loan made purposely to help people build their credit scores. The money you borrow is held by the lender and will not be released until you complete the payments on the loan. Basically, it is just like saving money in your account. The monthly payments are reported to the credit bureaus and they help you build your credit instantly.