How Is a Credit Rating Established?

You establish a credit rating the second you start using credit; however, beginning your credit life has its challenges. A seasoned consumer has a credit history, so when applying for credit, a potential lender can just run her credit report and determine her credit risk. When you have never used credit, there is no way for a creditor to determine how you will handle your debt. Still, every seasoned consumer has been faced with this financial predicament at the beginning of her credit life. There are numerous ways to encourage a potential lender to take a chance on you.

Establishing Credit

You establish a credit rating the second you start using credit; however, beginning your credit life has its challenges. A seasoned consumer has a credit history, so when applying for credit, a potential lender can just run her credit report and determine her credit risk. When you have never used credit, there is no way for a creditor to determine how you will handle your debt. Still, every seasoned consumer has been faced with this financial predicament at the beginning of her credit life. There are numerous ways to encourage a potential lender to take a chance on you.

A Retail Credit Card

A common way to establish a credit rating is to open a credit card at a retail store. Retail credit cards are much easier to obtain than a traditional credit card. You will only be able to used the credit card at the retail store on the card, or its sister stores, but the company will report your credit conduct to the three major credit reporting agencies: TransUnion, Experian and Equifax. After paying your retail credit card religiously for 6 to 12 months, acquiring additional lines of credit from other lenders should be less of a problem.

A Secured Credit Card

A secured credit card is another way to establish a credit rating. Secured credit cards are accepted at the same merchants of traditional credit cards. The only disparity is that a secured credit card is secured with a monetary deposit that will be used as collateral. The cardholder is responsible for paying the deposit, and the amount of the deposit will determine your credit limit. For example, if you pay a $1,000 deposit, your credit line for your secured credit card will be $1,000. If this is the route you plan to take to create your credit rating, be sure you do your research before choosing your secured credit card provider. Exclude any providers that charge excessive application fees and charges and any providers that do not report your creditworthiness to credit reporting agencies.

Things To Keep In Mind

After you have obtained a retail credit card or a secured credit card, there are certain things you need to keep in mind. For example, you need to pay all of your bills on time. This does not mean pay on the due date, and it also does not mean you should only submit the minimum payment that is due. Get in the habit of paying your bills at least 1 week before the due date and always pay more than the minimum payment. You are trying to prove yourself to creditors, so if you adapt responsible financial habits when you begin your credit rating, the good habits will become commonplace.

Be Responsible

There are additional things you can do to increase your chances of being approved for credit. For example, having a checking or savings account shows creditors that you are responsible. If you have a strong work history and if you have resided in the same location for a long time, potential lenders will be less anxious. According to the Federal Reserve Bank of San Francisco, a few of the most common reasons that lenders deny credit applications are too little time at current job or residence, irrational reasons for seeking credit and outstanding debt.