Establishing Credit

Credit = convenience
We live in a consumer-driven society. We enjoy nice things like cars with more options and big houses. If we all had to work and save until we could pay cash for something, many of us would never be able to have those things.

Being able to buy and use something now and then pay for it later opens many doors. This can greatly improve our quality of life. Establishing credit and proving creditworthiness to lenders can make life easier in many ways, but with credit comes responsibility and making good on your promise to pay.

It can be easy to spend more than you normally would when you aren’t pulling green bills out of your pockets. Even so, credit can help you get that nicer car, a home you otherwise could never afford, and serve as a comfortable security blanket in case of an emergency.

What are creditors looking for?
Establishing credit takes time and discipline, but once you’ve proven yourself to lenders, you may be offered more credit than you need or want!

Creditors look at many factors to determine the risk in lending to you, which will affect whether or not you are granted credit, and at what price. Some of these factors include income, payment history on past debts, current debts and expenses, stability of employment and residence history, credit history including FICO score, and assets which can serve as collateral.

Lenders want to know that they are loaning money to a person who is not only financially capable of paying them back, but is also of good character and wants to pay them back.

Even with the income to support your lifestyle and all good intentions to pay, it can be difficult to get the first few lenders to take a chance with you so you can prove yourself.

Getting that first credit account
If you have a willing co-signer with good credit, possibly a parent or spouse, you can get a loan or credit card based on their credit history and so may be offered better terms than you would otherwise. You would be the principal account holder, you are responsible for the charges, and for making sure the payments are made on time.

The co-signer usually has no other involvement unless you default on the loan. This person, who is doing you a favor by co-signing to begin with, would then be required to pay the bill or receive negative reports on their own credit history.

If getting a co-signer is not an option and you have to go it alone, getting a secured credit card may be another alternative. It requires a deposit that you’ll eventually get back as long as the bill is being paid on time. Just having the account open and not using it won’t establish credit very quickly.

Whether you get a credit card with a co-signer or a secured credit account, don’t spend more than you should just to build credit. You could use your credit card each billing period for something you normally buy anyway, like gas or groceries, and then pay it off each month on time.

The key to using a credit card to build credit is not letting the charges get out of hand. You’ll pay interest on anything that’s not paid off by the end of the