Understand What lending institutions Are Looking For

Since you are looking to establish credit for the first time, lenders can’t look to your FICO score to determine whether or not to lend you money. In these situations they have to examine other factors that can help them decide if you are a credit risk or not.

• Bank accounts. You don’t need a credit score in order to open a checking account at your local branch. Since it doesn’t require credit to open, it also doesn’t get reported to the credit bureaus to establish any credit. Even so, your account history can be a vital component when banks consider giving you a credit card or loan for the first time.

• Employment history. Another important factor lenders look at is your employment history. They 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. credit card companys 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.

Start With Your Bank

There are a few things you can do that can help in your quest for establishing credit. The first thing you should do is open and maintain a checking and possibly even a savings account at a local bank. This is helpful in two ways:

1. When you have active bank accounts in good standing, you are proving that you can manage money. While bank accounts aren’t typically a part of your credit score, lending institutions can use this information to determine whether or not you are a credit risk.

2. Establishing a relationship with a bank will improve your chances in obtaining a loan or credit cards through them. If you already do business with a bank, they should be the first place to look. They know you and they value your business. This existing relationship should carry some weight when seeking credit.

Consider a Department Store Card

You’ve probably been shopping at the mall and been asked if you’d like to sign up for their store credit card to save 10% on your purchase, but politely declined. Generally, store cards are a bad idea because they lure you in with that up-front discount, and then the ongoing interest rate is very high.

Avoiding these cards is typically a good idea, but the ease in obtaining one may actually be a good thing if you’re having trouble establishing credit. If you have struck out at the local bank, you may want to consider checking with one of the local department stores and see what type of cards they offer. Whatever you do, make sure you find out whether or not they report to the credit bureaus. If they don’t, it will do you no good.
If you are approved for their card, you need to be disciplined and use it properly. Don’t treat this new purchasing tool as free money, but only as a means to establish good credit. The limit will probably be low anyway, but you should make an initial purchase with it and subsequently pay the balance off in full. Once the card is active, it should begin to be reported to the credit bureaus. It is now important to maintain a good payment history on this card so your credit history can build upon it.

When All Else Fails

If you’ve tried the bank, department store, or even credit card companies directly and failed, not all is lost. Secured credit is a last resort, but it is much easier to obtain than unsecured credit.

When a charge card or loan is secured, it means that there is an asset linked to the account that the lending institution can take if you fail to make payments. When you have a mortgage or auto loan, these are secured loans. If you fail to make payments, the credit card company will take your house or car in order to satisfy the debt.

You can establish the same thing at most banks with a secured credit card. You can pledge money you deposit in an account to secure the charge card. For example, you could obtain a secured charge card with a $500 limit if you put a $500 deposit in the bank that is linked to the card. If you fail to make your credit card payments, the bank takes your deposit.

Again, you want to check and be sure that this secured credit is reported to the credit bureaus, but if so, this can be a useful tool to establish that first piece of credit history. After you maintain that account in good standing for a while, you may be able to obtain a regular charge card or loan.

Establishing Credit is Only the First Step

Establishing a good credit history takes time. There are no shortcuts or tricks that can take you from no credit at all to a high score in a matter of months or even a few years. Your credit score is based on a number of factors such as payment history, length of time you’ve had credit, and much more. So, while it is important to initially establish credit, it is even more important to take the time to do the right things to maintain good credit.

A good place to start with all of this is using Discover cards and Chase credit cards

Well, building good credit scores may prove difficult and take a long time. There are many ways to go about starting this process. You could get a new cell phone on a contract or a new cable bill but ultimately, these processes will take quite some time. On the other hand, getting a secured charge card can prove to be the better way to go. Credit cards have proved time and time again to be a great method for building good credit ratings. So what is a secured charge card and how do you go about getting one?

A secured credit card is a charge card that is secured by an initial deposit you use to open the account. When you fill out the application for one of these cards, it will most likely need to be coupled with a deposit of somewhere between $300 and $500. This deposit then becomes your credit limit. Once the deposit is made and the card is activated, you are able to use it just like any other card the only difference is that you are essentially paying interest to borrow your own money. Why would you want to pay to borrow your own money? The answer is simple, the risk factor for the bank is not there when they are not lending you money. Borrowing your own money gives the banks and credit reporting agencies a way to see how responsible you can be when offered credit. How you maintain your secured card is most likely going to be the same way you maintain an unsecured card. After a while you will get your deposit back and your secured card then becomes an unsecured card. Getting one of these cards is also fairly simple. There are many websites all over the internet such as www.JemCreditCards.com that allow you to apply rite there online. You don’t need credit so as long as you fill out the application and you have the initial deposit at hand, you will be approved. Also, in my research I have found that Chase credit cards and Discover credit cards offer the best credit building cards.

Q: Why are the credit card companies doing this to me?
A: Well first off, you are not the only victem in this process. credit card companies all over are doing this to many card holders. The reason although it seems to be unfair is actually pretty simple to grasp. In early 2009, Caroly Maloony along with other major aspects of the United States Government started what is now known as the credit card reform. This reform started with a simple act called the cardholder bill of rights and has grown through many acts and legislations since. Banks argue that the new credit card reform rules and regulations will not only cut into their profits but have an effect on their ability to “price for risk”. Obviously loaning money wether for credit cards or any other kind of loan carries a risk to the lenders. Due to some of the rules these risks are harder to take unfortunately this is what is leading credit card companies to reduce credit lines even if you are the perfect client.

Q: Will a credit line reduction effect my overall credit score?
A: This is another unfortunate thing. Although I don’t like to be the bearer of bad news, I feel that it is vitally important that you fully understand what is going to happen. The short answer is YES THIS WILL HURT YOUR CREDIT SCORE! But, I want to explain to you why. Even though there is no one that can truely tell you the secret as to how credit scores are calculated, there are a few pieces of the puzzle that are pretty much public knowledge. One of these pieces is all about credit limits. It goes something like this, your credit is effected (although I can’t tell you what percent of your credit score this may effect) by credit lines in this way – It is something called your debt to credit ratio. Many credit analysts including myself say it is best to keep this ratio at 50% or less. This means that if you have a credit line of $10,000.00 on one of your credit cards, you want to make sure not to carry a balance of no more than $5,000.00 on that particular account. Here is where the problem comes in for most people lets say you have a $10,000.00 credit line today and you have a balance of $4,500.00 well, you are doing what is best to keep your credit score in tact on that card. Lets say tomorrow the lender decides to reduce your credit line to $5,000.00 and unfortunately you do not have the funds to pay the balance down to $2,500.00 or less. Well at this point this is going to effect your debt to credit ratio and eventually your credit score.

Q: Is there anything that I can do to stop this from happening or repair the damage?
A: As far as stopping the process, unfortunately this process can not be slowed, halted, or stopped in any way. This is something that the lenders are doing no matter who you are or how you pay toward your account. On the other hand, there are ways to start fixing the damage once it has been done. Even if you cannot pay off your balance or the portion of your balance that needs to be paid off to fix the issue, you might still qualify for a balance transfer credit card. You can use a balance transfer card to pay off the portion of the balance that you cannot afford to pay off cash. Doing this may prove to be a great move as far as your credit score is considered. When looking for good balance transfer opportunities I always advise Discover credit cards because of their excellent customer service and the fact that they are not participating in most of the aspects that are harming consumer credit scores.

For more information on this topic or any other financial topic feel free to contact us:
By phone – (561) 355-0069
By email – Support@JemCreditCards.com
On the web – www.JemCreditCards.com