How to Establish Your Credit History

Establishing your credit history can be tricky. Lenders won’t give you any money if you don’t have a credit history – but how can you build a credit history if lenders won’t give you any money? It’s the classic chicken vs. egg problem – what should come first? Follow our guide to establishing your credit history and you’ll soon have lenders falling over themselves to lend to you!

In the US, your credit history is directly linked to your social security number. Your credit history will show potential lenders your history of having loans and how you pay them off, whether you pay things like your rent or bills on time, how many times you make late payments and whether or not you have ever defaulted on a loan or bill.

If You Don’t Have a Credit History

If you don’t have a credit history, you might find it difficult to get a loan, an apartment, a cell phone, a car, credit cards etc. Bad or negative marks in your credit file could stay there for up to seven years.

Fast Facts

  • You must have resided in the US for at least six months to be able to get a credit card
  • If an agency denies your request for credit they must provide you, if you ask, with a written explanation as to why. That doesn’t mean that they’ll tell you what to do in order to improve your credit score and get accepted for credit in the future – it will be up to you to go away with that information and work out what you need to do in order to improve your score
  • If you get offers of credit through the mail, that does not mean that you’ll automatically be accepted for the credit should you apply and actually, if you do apply and get rejected, it could have a negative effect on your credit score. If you do get offers through the mail, throw them in the bin – there are much more suitable cards for those who do not have an established credit history.
  • Applying for too many credit cards at once will have a negative impact on your credit score. If one provider has denied your credit application, chances are, most of the providers will deny it – plus, repeated applications made in a short period of time will appear on your credit score and will make potential lenders a little bit nervous as those repeated applications make you seem desperate for cash
  • Credit scoring has to be based upon your financial background. Sex, age, race and other similar factors are not allowed to influence your credit worthiness.

Establishing Your Credit

Establishing your credit isn’t as easy as you might think. Although you might expect lenders to be falling over themselves to give you money, nowadays, it is actually quite difficult to get credit, especially if you don’t yet have a credit file. To establish credit, follow these tips:

  • Open a bank account and a savings account. Don’t let bills come out of your account if you don’t have the money and make sure that you never go overdrawn. If you don’t even have a bank account, you literally have no credibility to lenders
  • Pay your own bills. If you’re living at home with your parents, get phone bills or electricity bills set up in your name, coming from your bank account, and pay them on time each and every month. Doing this establishes that you’re able to pay bills and it also helps to build up a credit history at your address even before you move out of your parent’s home. When you do get your own place, make sure all of the utilities are swapped over to your new address and ensure that all data regarding your previous address, current address and name is present and correct. Don’t try to apply for cards and credit as soon as you move – you’ll need to establish that you can pay your bills on time before you start applying for credit.
  • If you can avoid it, try not to move around too frequently. Generally, it’s much easier to get credit if you’ve only had one address in the last three years.
  • Open store cards. This is not usually recommended if you’re trying to maintain your credit, but if you’re trying to establish credit, it’s definitely a way to get started. Ask if the store card reports to credit bureaus before you apply – it’s pointless having a card if it isn’t going to improve your credit. When you make purchases on the card, pay them back before your statement is due – that way, you won’t have to pay extortionate interest rates. Once your history is established (around six months) and you have a real credit card, cancel all store cards.
  • Try a classic credit card. Some credit cards require you to pay the full balance off each month, meaning that they are fairly easy to get approved for. You might also want to try a secured credit card, where the credit is secured against an item of value, or against money that you have already paid to the bank. That way, if you don’t pay your bill on time, the bank will still be able to recoup the funds either from you so that they won’t be out of pocket.
  • Having a loan is an excellent way to build your credit history. Make sure that you have plenty of supporting information, such as a salary letter, employment letter, proof of address etc¬†and you’ll find the approval process much easier. Building and improving credit is easy if you pay your loan back on time, but if not, you’ll find that your credit score plummets really quickly too.
  • Whenever you do manage to secure credit, make sure that you’re as sensible with it as you can be. Spend too much and you might find it difficult to pay off. Spend too little and it won’t really have any bearing on your credit score.

For more tips for building, establishing, maintaining and re-building your credit score, take a look at the rest of our posts.