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Establish
Credit 
Whether you are establishing credit for the first time or re-establishing
after a bad history, you will face many of the same dilemmas...
you need history before you can get credit but can't establish
history without having credit.
Financial institutions
pay a credit bureau to compile information about consumers.
These reports are similar to high school and college transcripts--instead
of collecting grades, credit bureaus collect credit information.
There are three credit bureaus that compile information about
your credit history (Equifax, TRW and Trans Union).
In order to get credit,
you must show a number of stabilizing attributes. Most notably,
your report must prove to the lender that he will get his money
back. Without a history to prove this, however, you still have
a few options at your disposal.
Co-Sign
One way is to utilize someone who already has a good credit
history established and is willing to co-sign. If you are fortunate
enough to know of such a person, you are not only well on your
way to establishing credit, but you are very fortunate indeed.
But be aware that any default of credit on your part affects
the credit of the co-signer. People who care enough about you
to co-sign, do not deserve a bad credit incident through no
fault of their own.
Once the co-signing
has occurred, you simply make payments on or before the due
date. In time you will have established a credit history. If
you want to accelerate the issue, payoff the debt in full when
the first bill arrives but not before. Completion of the full
billing cycle is important for a "pays on time" report
card to be established. This will not only make your creditor
happy but your co-signer as well. The next step is to ask the
co-signer to repeat his generosity (if necessary). Then: create
a debt, wait until the first bill comes, pay it off in full.
Keep repeating until you no longer need the co-signor. Credit
history is now established.
Secured Credit Card
Another method to establish credit history is through a "secured
credit card". With this method you open a savings account
with someone who offering this type of card. Once the account
is established (sometimes with as low as $100.00), you are issued
a normal credit card which can be used up to the amount you
have in the savings account.
Be aware that interest
is charged just as with any other card even though return payment
is actually guaranteed to the lender through your savings. Here
is a formula:
- Create a debt
on the new card.
- Wait until
the first bill comes.
- Pay the bill
off in full or make payments until paid off.
- Repeat until
you can establish unsecured credit.
Department and Gasoline Credit Cards
Since gasoline credit cards are not revolving (cannot carry
a balance forward month-to-month), often they are easier to
obtain than regular credit cards. Similarly, some department
stores offer revolving credit for a specific purchase and this
is sometimes easier to establish. It is also a great way to
establish credit. A word of warning, every time you apply for
credit, you get a check mark. Too many check marks in a short
period of time and you are declined for credit, "Excessive
Inquires". It's an additional "catch 22" that
usually will not catch you, but it is far from uncommon.
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